The first two quarters of this year witnessed 46 bankruptcy filings from companies backed by private equity firms. That places 2009 on pace to double last year’s total of 49, which is right in line with some predictions from the end of last year. Download the full spreadsheet below.
A few notes on the list this quarter:
1. The second quarter list includes our first mega-buyout bankruptcies: Extended Stay Inc., backed by Lightstone Group, and Chrysler, backed of course by Cerberus Capital Management.
These deals could be the tip of the mega-bust iceberg, but I think most would agree that they’re isolated incidents. We’re still waiting, with bated breath, for 2011, when the real flood of mega-buyout debt begins to mature. Until then, the mega-market bankruptcies (ones with deal values greater than $5 billion) will be limited to the most underperforming companies with the most ridiculous capital structures.
Clear Channel, backed by Bain Capital and THL Capital Partners, and Harrah’s, backed by Apollo Management and TPG, come to mind.
Notably, the enthusiasm for Harrah’s recent debt offering could be an indication that the mega-firms can successfully navigate bankruptcy landmines. With few attractive exit routes, hold times are extended and IRRs may stink, but breaking even is better than losing money in bankruptcy. (The real losers in situations like Harrah’s are the debt providers, who have accepted unfavorable debt swap terms in order to avoid losing their entire investment in a bankruptcy.)
2. Repeat offenders, firm-wise, are not as plentiful as you’d think. Sun Capital leads the pack with seven failed companies, including the rather large Mark IV, with assets of more than $500 million and liabilities of greater than $1 billion. Lone Star funds has had three bankruptcies, HIG Capital has two, and the rest are one-timers. Surprisingly, there are zero appearances from Apollo Management; that hasn’t stopped speculation around portfolio companies like Claire’s Stores and Realogy.
3. The Chapter 22’s are piling up. I think a company that lands in bankruptcy court more than once in a decade may want to think long and hard about its reason to exist. That includes CCMP Capital Advisors’ Pliant Corp., NRDC Equity Partners’ Fortunoff, and Versa’s American Restaurant, Lone Star Funds’ Bruno’s Supermarkets, and Richmond Capital Partners’ Nukote International, which blamed swine flu for its filing.
4. I’m keeping my eyes peeled for dividend recaps on bankrupt companies, which just looks bad. For example, JLL Partners’ JG Wentworth, Bruckmann Rosser Sherrill & Co.’s Eurofresh, Wind Point Partners’ United Subcontractors, and Metalmark Capital’s Aventine Renewable Energy all earned their private equity backers a nice return in the form of a dividend recap before the company ultimately failed. At least JLL Partners is doing the right thing by re-investing in the company.
(Note: The quarter’s official end is next week, but since today is my last day before vacation, you get an early look.)
Lastly, the methodology disclaimer:
This year, we’ve created a more comprehensive tracking method. Beyond just listing the basics, this spreadsheet now includes the year the investment was made, deal value, and, when available, the fund, equity amount, status of the company, and assets and liabilities of the company.
Like last year’s list, this list doesn’t include debt investments (like Apollo’s Lyondell), hedge fund investments, (unless it was made alongside a buyout fund), or PIPEs. Only buyouts. I’ve made a separate section for minority investments at the bottom; however, that list is not comprehensive. Please let us know if we’ve overlooked one that fits those criteria.
Download the entire spreadsheet here: LBO-Backed-Bankruptcies-Q209-peHUB