Texas bankruptcy attorneys expect business bankruptcy filings and restructurings to increase 30% in 2016, according to a sampling of the state’s bankruptcy practitioners by Houston-based business valuation, litigation consulting, and financial restructuring firm HSSK LLC.
The bankruptcy attorneys’ forecasts ranged from business filings remaining flat in 2016 to a 100% increase, and averaged a 30% rise. In addition, a majority (60%) expect the number of individual bankruptcy filings to be unchanged in 2016.
Marc Schwartz, HSSK president and co-founder, said, “A 30% increase in cases would produce Texas’ fourth-highest level of business bankruptcy filings in 12 years. Based on the average amount of liabilities involved in the responding attorneys’ cases, a 30% rise would mean that more than $84 billion of assets and 800 Texas companies will face the risks and uncertainties of bankruptcy or forced restructuring during the next year. It is likely that the lessons of the 2008 oil price crash – which produced a 46% increase in business bankruptcy filings in the following year – may help to moderate the current downturn’s effects. If these respondents’ estimates are correct and the 2016 rise in bankruptcy filings is one-third below that of 2009, it would reflect a better level of preparation for a downturn by many exploration and production (E&P) and services companies, banks, investors, and financial professionals.”
Participating bankruptcy attorneys also expressed a large consensus that low oil and gas prices are the primary factor driving bankruptcy filings and restructurings, and that oil and gas prices are not likely to recover soon.
More than eight in 10 respondents (84%) identified oil and gas price levels as the factor having the largest effect on bankruptcy and restructuring activity in Texas. Almost half (46%) of participants do not expect oil and gas prices to return to 2014 levels before 2018, and one-third do not expect a price recovery until after 2019.
More than two dozen bankruptcy attorneys across Texas contributed to the HSSK forecast.
“This sampling’s broad consensus on the outlook for bankruptcy filings and oil prices reflects the anecdotal indications that we have seen for the last several months,” Schwartz said.
In response to HSSK queries, more than two-dozen bankruptcy attorneys in seven cities across Texas (38% each from the Houston and Dallas metropolitan areas) provided their forecasts of bankruptcy and restructuring activity and oil prices in 2016 and beyond.
The respondents also reported that:
- Among one-third of respondents, 2015 business bankruptcy and restructuring activity was unchanged compared with 2014, and down 20% or more among another 40%.
- The average total of liabilities in their business bankruptcies and restructurings is slightly over $100 million, and almost $5.5 million in individuals’ cases.
- In 2015, one-third of potential business bankruptcy cases were resolved without a bankruptcy filing; just over one-fourth of individual cases avoided a bankruptcy filing.
- Almost 60% of responding firms have 25 or fewer attorneys in their Texas practice, and 23% are 100+ lawyer practices.
HSSK LLC is a Houston-based business valuation, litigation consulting, and financial restructuring firm whose principals have more than three decades of experience in bankruptcy practice.