Capital Markets

April Is Bankruptcy’s Cruelest Month

And that's before casino operator Tropicana's May filing, as seeking court protection mounts in the credit crisis.
Stephen Taub and Roy HarrisMay 6, 2008

In the latest manifestation of the infamous credit crunch, April business bankruptcies surged 49 percent from a year ago — to 5,173 filings.

Altogether, more than 18,000 businesses have filed for bankruptcy protection in the first four months of 2008, either to liquidate or to reorganize, according to Bloomberg News, citing statistics compiled from court records by Jupiter eSources LLC. About 2,700 companies sought relief from creditors under Chapter 11.

Last year nearly 43,000 businesses filed for bankruptcy, including more than 6,200 seeking Chapter 11, according to the report.

And, of course, there’s no sign of a 2008 letup. On Monday, casino operator Tropicana Entertainment LLC filed for Chapter 11 protection, less than five months after the New Jersey Casino Control Commission revoked the company’s license to run its Atlantic City resort.

“When you go into a downturn, the cyclical industries tend to get hit,” Mike Englund, chief economist at Action Economics LLC, told Bloomberg. “Any sudden downshift in growth will generate rises in these numbers.”

The wire service also pointed out that tougher lending standards now make it harder for small businesses to stay afloat. It pointed to the Federal Reserve’s report on Monday, showing that the proportion of U.S. banks making it tougher for companies and consumers to borrow approached a record in the past three months.

The causes of Tropicana’s filing go beyond credit-related problems, and reflect an unusually strong impact on gambling enterprises in general from the current economic slowdown. The privately held company, owner of the Las Vegas Tropicana and eight other properties in regional markets, said that its properties “are more than adequately financed” and it expects to continue normal operations and staff levels, according to a Reuters report.

Tropicana is the former owner of the Tropicana Hotel Casino in Atlantic City, placed in a trust last December after the state commission decided not to renew that casino’s license. Tropicana said the Atlantic City property, which the trustee is taking bids on, is not part of the bankruptcy filing.

The company said it plans to fund operations with cash flow and $67 million in debtor-in-possession financing provided by Silver Point Finance. In a regulatory filing last week, Tropicana said that it had received a default notice from Credit Suisse Group, which is the agent for lenders on its $1.3 billion credit agreement.

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