- A gauge of Chapter 11 bankruptcies surged 12 points to 81 in the third quarter and hit its highest level since 2010, according to a report from law firm Posinelli.
- The reading sits 26 points higher compared to the year-ago period but remains 19 points below the benchmark set in the fourth quarter of 2010.
- US businesses faced a dire confluence of soaring virus cases and expiring fiscal support in the third quarter. The Southeast region, which hosted the bulk of new outbreaks, saw nearly 40% of quarterly bankruptcy filings.
- Filings will likely increase "as we deal with the fallout from the pandemic," Jeremy Johnson, a bankruptcy attorney and co-author of the report, said.
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Chapter 11 bankruptcies hit their highest level since 2010 in the third quarter as lasting damage from the coronavirus pandemic and expiration of fiscal support overwhelmed US businesses.
A gauge of Chapter 11 distress among surged roughly 12 points to 81 over the quarter that ended in September, according to a report from law firm Posinelli. The index sits roughly 26 points higher from the year-ago period and remains 19 points below the benchmark set in the fourth quarter of 2010.
The third quarter marked the sixth straight quarter of the distress index landing above 50 points. The gauge hasn't seen such stress since the financial crisis, Posinelli said.
The firm's index of real estate distress dipped 1 point to 29 in the third quarter. The reading is down roughly 4 points from the year-ago period. The nation's housing market has served as a bright spot throughout the pandemic as record-low rates fuel outsized buying.
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The Posinelli-TrBK indexes track Chapter 11 filings from businesses with more than $1 million in assets. Nearly half of the previous quarter's filings came from businesses with more than $500 million in assets.
Almost 40% of filings originated in the Southeast, according to the report. The region, which includes Florida, Texas, and Georgia, was hit particularly hard by the virus over the third quarter.
The jump in bankruptcy filings arrived as key stimulus measures expired over the summer. The Paycheck Protection Program, which offered forgivable loans to small businesses, closed in early August. The period also saw the expiration of expanded unemployment benefits, leaving unemployed Americans with diminished spending power as cases ticked higher across the nation.
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The current quarter doesn't offer much reprieve for struggling companies. Daily virus cases continue to hit record highs as public health experts warn for a dangerous winter. Several cities have instituted new lockdown measures to curb the virus's spread, but the restrictions could cut into crucial holiday-season revenue. And Congress remains stuck in a stimulus stalemate as both parties quarrel on the size of a new relief package.
"Although it's difficult for anyone to predict what the economy will do the rest of 2020 and into 2021, we do anticipate filings continuing this momentum as we deal with the fallout from the pandemic," Jeremy Johnson, a bankruptcy attorney and co-author of Posinelli's report, said.
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