U.S. Bankruptcy Tracker: Texas Energy Crisis; Subchapter V Surge


Photography: Eddie Seal/Bloomberg
  • Texas power loss drives businesses distress with more to come
  • New bankruptcy rule lets investors retain equity ownership

The Texas power crisis is threatening to spark a new wave of distress in the Lone Star State, following a going concern warning from Just Energy Group Inc.

“The Texas power loss will have a significant impact on businesses that haven’t been able to restore power and can be devastating to companies that were already in a crisis scenario,” bankruptcy lawyer George Angelich of Arent Fox said in an interview.

Canadian energy retailer Just Energy on Monday said it may have troublecontinuing as a going concern after last week’s freezing weather cost it about $250 million.

Extreme gyrations in regional U.S. gas and electricity prices because of the cold weather in Texas also affected the finances of other companies. Atmos Energy Corp., one of the largest independent suppliers of gas in the U.S., revealed Friday that it’s looking to raise cash after committing to spend as much as $3.5 billion to secure fuel during the freeze.

Small Is Beautiful

In court, more companies are using new legal strategy to zip through bankruptcy without many of the headaches and costs of Chapter 11.

Solstice Marketing Concepts LLC, the self-proclaimed second-biggest retailer of sunglasses in the U.S., filed for Chapter 11 bankruptcy under Subchapter V. The new subchapter, introduced in February 2020, shortens timelines and eliminates creditors’ committees for companies with less than $7.5 million of debt.

“This is kind of a new phenomenon,” said bankruptcy attorney Joseph Packof Pack Law. The process allows investors to “flush the debt of their portfolio company in a bankruptcy proceeding and still keep the company,” he said. An entity’s total assets don’t impact its ability to utilize Subchapter V — only its debts, Pack said.

Slow Week

U.S. bankruptcy courts saw just one large Chapter 11 case last week

Source: Bloomberg

Note: Filings are of companies with $50m+ in liabilities

Equity owners usually lose their stake in a bankrupt business during a Chapter 11. Pack expects more Subchapter V filings from bigger firms as attorneys become familiar with the process.

Solstice was one of more than 1,500 Subchapter V bankruptcies filed since the law took effect, according to data compiled by the American Bankruptcy Institute. Greylock Capital, the emerging markets hedge fund, is also usingSubchapter V to ditch a costly lease.

Retail Sadness

Solstice’s filing further underscores the pain in retail. Beauty products seller L’Occitane Inc. also filed for bankruptcy last month, along with women’s clothing retailer Christopher & Banks and Stock+Field — a farm, home and outdoor goods chain.

“Unless landlords and retailers are able to come to an out-of-court resolution of lease disputes, you will continue to see retailers file. We’re far from out of the woods,” said Arent Fox’s Angelich.

Unsuccessful or non-existent online presence is a reason why many retailers file for bankruptcy, said Alex Mehr, co-founder and chief executive officer of Retail Ecommerce Ventures. His firm invests in distressed retailers and often buys brands through Chapter 11.

Retailers will continue to go bankrupt as long as they face “huge fixed costs and dwindling revenue,” Mehr said. “Add a pandemic on top, and bankruptcy is inescapable.”

The Federal Reserve sounded the alarm on potential business bankruptcies and steep drops in commercial real estate prices in a report Friday. It notedthat “insolvency risks at small and medium-sized firms, as well as at some large firms, remain considerable.”

Less Distress

The amount of traded distressed bonds and loans fell to about $110 billion as of Feb. 19, down 8.1% week-on-week. Troubled bonds fell by 6.9% while distressed loans dropped 12.4% in the latest week. Chesapeake Energy Corp.’s exit from bankruptcy removed a swath of debt from the total.

Click here for a worksheet of distressed bonds and loans

There were 286 distressed bonds from 149 issuers trading as of Monday, according to Trace data. That’s down from 319 bonds and 161 borrowers one week earlier, but well below the 1,896 bonds at the March 23 peak.

Number of distressed bonds trading dipped in latest week

Diamond Sports Group LLC had the most distressed debt of issuers that hadn’t filed for bankruptcy as of Feb. 19, Bloomberg data show.

Diamond Sports Group LLC 4.8
Transocean Inc 4.5
AMC Entertainment Holdings Inc 3.8
PBF Holding Co. 3.0
Digicel Group 1.9

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.

— With assistance by Jenny Sanchez, and Anik Chattopadhyay