On Tuesday, April 4, Richard Branson’s satellite-launching company Virgin Orbit filed for Chapter 11 bankruptcy. The company failed to find a funding lifeline following a launch failure and is now looking to sell its assets.
When a public company like Virgin Orbit goes bankrupt, there is no shortage of headlines. But there’s an undercurrent happening in the bankruptcy world that isn’t getting as much attention.
This year, research shows private companies are filing for bankruptcy at rates that exceed what was seen at the height of the pandemic. According to UBS, a lot of bankruptcies are at smaller firms for now, so the impact on assets and employees is not as egregious as the sheer number of filings.
Experts say real estate is one place that is seeing a bankruptcy boom, while health care, retail, construction, restaurant and financial sectors are areas to watch.
Former bankruptcy judge and current American Bankruptcy Institute President Kevin Carey said he’s witnessed bankruptcy filings ticking up for the past couple of months.
“We’ve been talking about, for a really long period of time now, for the recession to happen,” Carey told Straight Arrow News. “And so a lot of the lending is on hold. Investors don’t want to put money into a volatile economy.”
Carey said the banking crisis is just injecting more uncertainty into an economy that was already tightening credit. The latest Fed survey found roughly 44% of banks reported tightening standards for business loans in the first quarter of 2023. With the exception of the COVID-19 pandemic, it’s the highest share to say that since 2009 in the wake of the Great Recession.
“Once liquidity runs out, companies are faced with very few choices,” he said, noting that many Chapter 11 bankruptcies he’s seeing now are seeking a sale of the business as opposed to restructuring. “So many businesses that find their way into Chapter 11 are over-levered, and businesses find themselves in a situation in which there’s just no way out but to sell the company.”
Catch the full interview with the Honorable Kevin Carey in the video above.
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