“2016 saw an increase in the out-of-court work outs and liquidations under state law (Assignments for the Benefit of Creditors) along with some industry-specific Chapter 11 cases related to apparel retail chains, oil and gas, sporting equipment re-sellers, and educational trade schools, to name a few. These specific industries were hit with decreases in commodity prices, consumer shifts to on-line shopping platforms, and political and policy changes in Washington.
As we begin 2017 that trend appears to be continuing, with the filing of the Wet Seal bankruptcy, the continuing bankruptcies in the oil and gas exploration field and the numerous general assignment matters happening across the country. We have already seen a significant increase in the ABC/workout related matters since the start of the year, in some respects reminding us of the dot.com era of the early 2000’s. In past cycles, corporate liquidations and out-of-court workouts tend to be a leading indicator for the more legally complex Chapter 11 cases to follow. Add the increase in interest rates by the Fed in late 2016 and anticipated incremental increases in 2017, the trickledown effect has already been visible in the businesses that were struggling to make ends meet to survive. Adding increased interest expense to thinly margined businesses will result in a greater number of defaults and loan covenant violations. Finally, the recent change of administration in Washington could lead to instability in the international business markets leading to further insolvency opportunities.”