U.S. Bankruptcy Tracker: Health Care Shows More Cracks

The city of Chicago took a hit last week with a large hospital system entering bankruptcy, underscoring the distress that’s building in the health-care sector.

Mercy Hospital and Medical Center filed for bankruptcy on Wednesday after its owner tried to close the facility, but was rebuffed by Illinois’ health review board. The hospital takes on sicker patients, many of whom lack private insurance that reimburses at higher rates, according to court papers. It has had financial problems since the 1990s.

Hardship is spreading through the U.S. health-care system, with costs of treating Covid-19 patients climbing while more profitable procedures are limited. A total of 22 large health-care related companies filed for bankruptcy in 2020, according to data compiled by Bloomberg.

Hospital filings will increase over last year without looser CARES Act regulations and access to other grants, Perry Mandarino of B. Riley Financial Inc. said in an interview. Health care is “fundamentally challenged because costs rise every year, but insurance reimbursements and revenue aren’t rising,” he said.

U.S. Bankruptcy Tracker: Health Care Shows More Cracks

Still, some states will step in to support hospitals with high volumes to avoid filings, Mandarino said. Some systems will have “so much influence over the community, it will mean the state departments will have no choice but to help see them succeed.”

Mercy’s bankruptcy brings the tally of large health-care sector filings to five since the beginning of December, and two since the start of the year.

Four companies with at least $50 million in liabilities filed for bankruptcy in the U.S. last week -- the same number that filed in the week prior, but more than the one-per-week rate seen at the start of the year. The pace of filings may pick up in the second and third quarters of the year, according to Michael Sirota of the law firm Cole Schotz.

Patience Dwindles

“Now that lenders and courts are becoming less sympathetic, I think you’re going to see across various industries -- health care included -- the need to seek protection,” Sirota said. “Everybody had to do the right thing during this unprecedented time. But now, commercial parties -- landlords, lenders and counter-parties -- they’re feeling the pain, and they’re going to start to press all the buttons.”

Distress in the leisure and entertainment industries, hard hit by lost revenue from the pandemic, is still building. The U.S. leisure and entertainment institutional leveraged loan default rate could approach 30% in 2021, from just 9.9% last year, according to Fitch Ratings.

U.S. Bankruptcy Tracker: Health Care Shows More Cracks

Of the $39 billion of debt in Fitch’s top loans of concern list, $12 billion is tied to leisure and entertainment companies, more than double the next highest sector, according to a statement from the credit rater. Cineworld Cinemas, Travelport, AMC Entertainment and Equinox are among the issuers on the list.

The travel and hospitality sectors have had issues that will continue through the pandemic. “It’s hard to predict recoveries, especially for business travel,” said Lisa Beckerman of the law firm Akin Gump. There will be more bankruptcy proceedings as a result,“given the amount of debt the companies have had to borrow to stay alive,” she said.

Less Distress

The amount of traded distressed bonds and loans fell to about $120 billion as of Feb. 12, down 5% week-on-week. Troubled bonds fell by 5.3% while distressed loans dropped 4.2% in the latest week.

Click here for a worksheet of distressed bonds and loans

There were 319 distressed bonds from 161 issuers trading as of Monday, according to Trace data. That’s down from 340 bonds and 164 borrowers one week earlier, but well below the 1,896 bonds at the March 23 peak.

Transocean Inc. had the most distressed debt of issuers that hadn’t filed for bankruptcy as of Feb. 12, Bloomberg data show.

Top 5 Distressed IssuersDebt ($B)
Transocean Inc4.5
AMC Entertainment Holdings Inc3.8
Crown Finance US Inc3.3
PBF Holding Co.3
Digicel Group1.9

Click here for more news on distressed debt and bankruptcy. First Word is curated by Bloomberg editors to give you actionable news from Bloomberg and select sources, including Dow Jones and Twitter. First Word can be customized to your Worksheet, sectors, geography or other criteria by clicking into Actions on the toolbar or hitting the HELP key for assistance.

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