Higher interest rates, inflation, and other financial distress prompted more U.S. businesses to file for bankruptcy in March, the fourth straight month-to-month increase in commercial filings.
March is usually one of the busiest months of any year for bankruptcies. March 2023 commercial bankruptcy filings totaled 2,305, up 24% from the same month a year ago. Of those, Chapter 11 filings numbered 548, up 79% from March 2022.
For the first quarter, total overall commercial bankruptcies increased 19% compared with a year ago, to 5,733 filings. Chapter 11 cases rose 77% in the first quarter compared with 2022, to 1,301, per data from Epiq Bankruptcy.
An increase in large bankruptcy filings is one of the reasons for the March 2023 bump, said Ed Flynn, a consultant at ABI who served more than 30 years at the Executive Office for U.S. Trustees and the Administrative Office of the U.S. Courts.
Large bankruptcies have many related cases that go into the bankruptcy count. For example, the bankruptcy of Mountain Express Oil, a fuel distributor and convenience retailer with 828 fueling centers and 27 stores across 27 states, produced 44 related cases, said Flynn.
“We’re seeing three to five [commercial filings] per week with $100 million or more in assets and liabilities, and those are the ones that have a lot of related cases,” he said on a webinar on Tuesday.
S&P Global Market Intelligence recorded 71 corporate bankruptcy petitions in March, the fourth straight month of increases. (S&P considers “corporate” bankruptcies to be public companies or private companies with public debt with a minimum of $2 million in assets or liabilities at the time of filing, in addition to private companies with at least $10 million in assets or liabilities.)
March 2023’s count was also the highest monthly total since July 2020. The recent filings brought the year-to-date total to 183 as of March 31, which S&P said was “more than any comparable period in the past 12 years.”
Among the largest bankruptcies in March was SVB Financial Group’s Chapter 11 filing on March 17. The largest unsecured claims in the filing came as $3.3 billion worth of senior notes, according to S&P. Three days earlier, Sinclair Broadcast Group’s regional sports business, Diamond Sports Group LLC, filed a voluntary petition for reorganization under Chapter 11. The filing listed assets and liabilities in the range of $1 billion to $10 billion.
Subchapter V filings, a subset of Chapter 11 for smaller companies, also increased in March. The 140 filings were 15 more than the count in March 2022. (Subchapter V counts are included in the Chapter 11 totals.) First-quarter totals also showed an increase.
Subchapter V has several advantages over a regular Chapter 11 filing, among them being the debtor may retain its equity interest even though unsecured creditors do not receive payment in full. The filer’s aggregate secured, unsecured, non-contingent and liquidated debt must not exceed $3 million.
April 2023 Chapter 111 bankruptcies so far include the following cases:
Kalera, an operator of hydroponic vertical farms growing greens and culinary herbs, filed Chapter 11 on April 4. The company’s existing lender has agreed to provide $5.1 million in debtor-in-possession financing. Nasdaq suspended trading of the company’s shares as of April 17.
Pear Therapeutics filed Chapter 11 on April 7. The company is developing and commercializing software-based medicines — prescription digital therapeutics (PDTs). The company said it would operate scaled-down during bankruptcy as it seeks a purchaser of specific assets or the whole business.
After a mid-flight failure of Virgin Orbit’s latest rocket mission, the company filed for bankruptcy on April 14. The company, which secured $31.6 million of DIP funding from Virgin Investments, seeks “an efficient and value-maximizing sale.”
March also saw more Individuals filing for bankruptcy compared with a year ago. Filings rose 17% over March 2022, to 40,063 cases, according to Epiq.
“The growing number of households and businesses filing for bankruptcy reflects the mounting economic challenges they now face,” said ABI Executive Director Amy Quackenboss. “Debt loads are expanding as the prices of goods and services have gone up with inflation and the cost of borrowing continues to rise.”