Bankruptcy Filings Down in H1/21 after a Pandemic-Driven Spike in 2020

The COVID-19 pandemic has set off an increase in corporate bankruptcy filings not seen since the 2008 financial crisis, according to a report released by Cornerstone Research. The report, Trends in Large Corporate Bankruptcy and Financial Distress—Midyear 2021 Update, examines trends in Chapter 7 and Chapter 11 bankruptcy filings since 2005 by companies with more than $100 million in assets.

The report found 155 large companies filed for bankruptcy in 2020, second only to the 161 filings in 2009, many of which resulted from the financial crisis. Of the 155 bankruptcies in 2020, 104 occurred during the second and third quarters of the year, coinciding with the pandemic-induced economic shutdown. The pace slowed drastically in the fourth quarter to just 17 filings and continued to trend lower throughout the first half of 2021 as economic recovery took hold. Only 43 large company bankruptcies were filed in the first half of 2021 compared with 89 during the same period in 2020.    

In 2020, two industries —retail trade and mining, oil and gas — accounted for 48% of all large corporate bankruptcy filings. Consistent with the recoveries in oil prices and consumer spending, combined bankruptcies in mining, oil and gas and retail trade fell from 75 in 2020 to 11 in the first half of 2021.

Similar trends were observed among the largest subset of companies, with 60 “mega bankruptcies” (companies with more than $1 billion in reported assets) filed in 2020 — more than half of those in the second quarter. By contrast, only nine mega bankruptcies were filed in the first half of 2021, considerably lower than the 2020 level but comparable with the 2005 to 2020 average of 11 mega bankruptcies per half year. Of the nine mega bankruptcies filed in the first half of 2021, four were by companies in the real estate industry, which has been hit particularly hard by COVID-19-pandemic-related business closures.

Although severe, the spike in bankruptcy filings driven by the COVID-19 pandemic was shorter-lived than during the financial crisis. Following the onset of the pandemic, monthly bankruptcy filings were higher than the 2005 to 2020 average for six consecutive months compared with 14 consecutive months after Lehman Brothers filed for bankruptcy.

“Despite the decline in the number of large bankruptcies in the first half of 2021, future increases in borrowing costs could be especially concerning for companies that borrowed heavily to weather the COVID-19 pandemic,” J.B. Doyle, a report coauthor and Cornerstone Research principal, said. “We will see if increases in debt burden from the pandemic affects bankruptcy filings in the future.”