* Bankruptcy filings increase may be beginning of trend
* Weaker economic outlook may force lenders' hands
* Troubled companies finding it harder to survive
* Shipping, airlines, developers, retail seen at risk
* Despite worries, balance sheets still generally strong
By Tom Hals, Sue Zeidler and Caroline Humer
Oct 10 Three years after the collapse of Lehman
Brothers touched off a tidal wave of bankruptcy filings,
corporate failures may be about to pick up again, with some
big-name companies among those struggling for survival.
Companies in a range of businesses, including hair salons,
restaurants, renewable energy, and the paper industry, have
tumbled into Chapter 11 in the past few months.
The weak economy, lackluster consumer spending, a shaky
junk-bond market and increasingly tight lending practices are
also threatening struggling companies in industries as diverse
as shipping, tourism, media, energy and real estate.
AMR Corp's American Airlines AMR.N may need to go to
court to restructure its labor contracts, though a spokesman
for the airline reiterated on Monday that bankruptcy is not the
company's goal or preference.
Kodak EK.N confirmed that a law firm known for taking
companies through bankruptcy has been advising on strategy as
attempts to overcome the loss of its traditional photography
business falter. It has denied any intention of filing for
Some bankruptcy and restructuring experts warn a fresh U.S.
recession could trigger a string of failures to rival the one
that followed Lehman Brothers LEHMQ.PK, which in 2008 filed
the biggest bankruptcy in U.S. history.
"It's getting busier for everyone I know," said Jay
Goffman, the co-head of the Global Restructuring Group at law
firm Skadden Arps, Slate, Meagher & Flom. "I think 2012 will be
a busy year and 2013 and 2014 will be extraordinarily busy
years in restructuring."
No one is currently predicting a second Lehman-type
collapse. Its $639 billion bankruptcy came after a loss of
confidence in the investment bank as asset values plummeted,
leading to the drying up of credit lines.
In fact, predicting a bankruptcy wave at all is a tricky
task, experts say. It could depend on several unknowns: how
much money banks and other institutions are willing to lend
troubled companies, whether the economy lands in a double-dip
recession and what happens in the European debt crisis.
The sovereign debt crisis in Europe could be the most
important X factor. Even the experts who say that a bankruptcy
crisis is not coming because current low interest rates make it
easy for companies to get cash to finance their way out of
trouble, say that the euro zone's problems could trigger
"It is possible that one or two sovereign debt defaults
would increase the pressure we'd feel in the U.S. credit
market. Then we might see an environment like we had in 2008,"
said Peter Fitzsimmons, president for North America for
turnaround advisory firm AlixPartners LLP.
Chapter 11 filings are picking up, bankruptcy data show.
Ten companies with at least $100 million in assets filed for
bankruptcy in September, the most since 17 filed in April,
which was the busiest month since 2009, according to
For a graphic click here link.reuters.com/nuw34sp:
Recent failures included renewable energy companies
Evergreen Solar ESLRQ.PK and Solyndra SOLY.O. The latter
collapsed in a politically-charged bankruptcy after taking a
$535 million loan from the federal government.
Other recent bankruptcies include glossy magazine paper
manufacturer NewPage Corp [NEWPG.UL], which was the largest
bankruptcy of the year and the largest non-financial company
filing since 2009; Graceway Pharmaceuticals [GRCPH.UL], which
makes skin creams; Hussey Copper Corp., which makes the copper
bars used in switchboards, and the Dallas Stars of the National
So far this month, five companies with more than $100
million in assets have filed, including the Friendly's ice
cream chain - and wireless broadband company Open Range
It is difficult to predict trends in filings. For example,
experts who focused on macroeconomic credit indicators and
default projections in 2006 or 2007 wouldn't in many cases have
been prepared for the severity of failures that followed.
In 2009, General Motors (GM.N), Chrysler Group,
LyondellBasell Industries and General Growth Properties (GGP.N)
all filed for bankruptcy, contributing to a record number of
filings and topped the list of largest bankruptcies ever.
At the same time, some experts were predicting an even
deeper and longer list of corporate collapses. But within a
year of bankruptcy filings breaking records, banks and other
financial institutions were buying debt and lending, making it
easy for companies to finance their way out of trouble.
Two months after Lehman failed, the U.S. Federal Reserve
slashed rates to near zero. Once confidence began to return to
the debt markets, investors flocked to high-yield bonds sold by
ailing companies, allowing them to refinance.
Other failing companies were able to "amend and extend" -
or to critics, "amend and pretend" - by striking new borrowing
terms with lenders that delayed debt maturities in the hopes
the economy would rebound smartly and business would pick up.
Those measures often avoided operational overhauls,
creating what some experts called "zombie companies" that cut
staff and prices to survive, but were too sick to invest in new
Bankruptcy court allows troubled companies to shed debt and
also become more operationally efficient as they renegotiate
labor contracts, as airlines have done, or reject pricey store
leases, which retailers often do.
But these changes do not always work, especially when
companies find little support among suppliers or creditors for
their turnaround plans. Bankrupt book chain Borders BGPIQ.PK,
for instance, recently closed its doors after failing to find a
In addition, confidence in the economy and easy access to
debt allowed companies to complete restructurings in 2009 and
2010 with business plans and debt loads that were based on an
economic pickup that has now faltered. That could create the
potential for trouble at companies that have already