While 2020 was an exceptional year for U.S. corporate bankruptcies, a larger share of distressed companies upended by the COVID-19 pandemic is using court processes to restructure instead of close shop, according to S&P Global Market Intelligence data. Nearly 62% of U.S. corporate bankruptcy filings in 2020 sought reorganizations, the highest rate for any year going back to at least 2010, according to S&P Global. Companies were less likely to liquidate in 2020, a departure from 2019 and 2018 when corporate liquidations outpaced reorganizations in bankruptcy filings. As of March 30, the share of filings seeking restructuring is larger in 2021 than in 2020. Reorganizations have been increasingly prevalent as otherwise healthy companies use the bankruptcy process to navigate the extreme environment created by the pandemic, experts say. Creditors and debtors have struck deals prior to bankruptcy filings, and there have been many asset sales to preexisting lenders and bondholders, Joshua Friedman, global head of restructuring data at Debtwire, said in an interview. "We've seen significant chapter 11 activity with the goal of protecting the business," Friedman said. Retail sales plunged in April 2020 in the wake of lockdown measures aimed at stifling the spread of the coronavirus. Even when some states lifted restrictions, businesses faced depleted consumer confidence during the initial months of the pandemic. Stimulus money and a higher number of asset sales could be steering more companies to reorganize rather than liquidate, Connor Murphy, a director at Burford Capital, a global finance firm focused on law, said in an interview. Many companies that entered chapter 11 bankruptcy over the past year did so because they needed help navigating the "zero-revenue environment" created by the pandemic, Murphy said.
