Asking where the largest companies in the world are located and where the biggest bankruptcies of 2020 have taken place will give, quite unsurprisingly, the same answer. Due to Covid-19, the US economy suffered its most severe contraction in more than a decade. As a consequence of social distancing measures, lockdowns and travel restrictions, many companies found themselves losing customers or unable to operate. Businesses headquartered in other countries but with a large chunk of their operations in the US suffered equally.
Yet, when one looks at the top 10 bankruptcies filed this year, it becomes clear that these businesses were struggling long before the pandemic hit. For all of them, a combination of some or all the typical and painful remedies against financial insolvency—layoffs and budget cuts, sales of assets, refinancing or restructuring of debt—ensued.
At last, the worst might be almost over. The coronavirus vaccine is widely expected to help the global economic rebound and inject new life into those sectors that have suffered the most. Yet, it won’t able to fix the problems caused by carrying massive debt loads, by the shifts in consumers’ habits, by unsuccessful management and business model. Bankruptcy proceedings shine a light on all these issues and demand often painful solutions. They are a bitter pill to swallow and yet—in many cases—are necessary to begin a new, more prosperous phase for these companies.
15) NEIMAN MARCUS GROUP
Country: United States
Liabilities: $6.79 billion
The American chain of luxury department stores, which also owns New York landmark Bergdorf Goodman, became the first highest-profile retailer to apply for bankruptcy protection when it filed for Chapter 11 on May 7.
Granted, the pandemic alone didn’t bring down this shoppers’ mecca. Saddled with debt from two leveraged buyouts since 2005, Neiman Marcus had been struggling financially for a long time. Yet, the Dallas-based group proves that bankruptcy can be an opportunity to refocus and reorganize the business. Under a restructuring plan which eliminated more than $4 billion of its debt, the group managed to emerge from Chapter 11 in September. However, the journey back to profitability has just begun. One of the effects of the pandemic is that major designer brands have doubled down on direct-to-consumer strategies skipping over traditional wholesale distribution channels.
14) J.C. PENNEY
Country: United States
Liabilities: $7.16 billion
Over 840 locations across the United States, 90.000 employees, 118 years in business: This is how the beginning of 2020 looked for the sprawling retail giant. On May 15, barely a week after Neiman Marcus, J.C. Penney filed for Chapter 11 bankruptcy protection.
Like its upscale rival, the discount store chain has announced it emerged from bankruptcy after being acquired by mall owners Simon and Brookfield. One-third of its stores will be closed and 20,000 workers laid off, but that is the high price of survival. A majority of J.C. Penney’s workforce will get to keep their jobs.
13) AVIANCA
Country: Colombia
Liabilities: $7.27 billion
How much traveling did you do this year? With tourism ground to a halt almost everywhere, it’s been hard to keep track of all the airlines that went bankrupt in 2020. Arguably, this is not how Avianca was expecting to celebrate the beginning of its second century in business. Founded in Colombia in 1919, the world’s second-oldest carrier (behind the Dutch KLM) and Latin America’s second-largest filed for Chapter 11 in New York on May 10. Along with many historic airlines, Avianca had been facing competition from low-cost operators for years. To stay in business, it plans to cut routes and let go of up to 40% of its fleet.
12) NORWEGIAN AIR
Country: Norway
Liabilities: $7.34 billion
About those low-cost airlines—they suffered too. Norwegian Air, the pioneer in discounted transatlantic flights, entered into administration in December. Years of aggressive, credit-fuelled expansion left the company vulnerable to shocks. In the second quarter of 2020, the carrier’s passenger numbers collapsed by 99% due to the pandemic and it became impossible for them to make debt payments in full and on time.
It is worth noting that Norwegian sought for court’s protection from its Irish creditor, where the company’s aircraft assets are held, through a process called Examinership. Many multinational firms prefer instead to file for bankruptcy in the US—all it takes is to be incorporated or have assets or operations within America’s borders. The advantage is that, contrary to most foreign insolvency systems where a trustee is appointed, filing for Chapter 11 gives the existing management the power to retain control of the company and prohibits all parties from taking any legal action against it outside the bankruptcy proceedings.
11) SEADRILL LIMITED
Country: United Kingdom
Liabilities: $7.3 billion
It is all connected. You are grounded, you don’t drive, you don’t take public transportation, you don’t fly: who needs to buy petrol? The crash in oil demand prompted by lockdowns and travel bans forced numerous energy firms to declare bankruptcy. Seadrill—a rig contractor managed from London but incorporated in Bermuda for tax purposes and controlled by Norwegian billionaire John Fredriksen—filed for Chapter 11 in December. It wasn’t the first time: a previous bankruptcy initiated in 2017, it is safe to say, did not solve the company’s cash problems.
10) DIGICEL
Country: Jamaica
Liabilities: $7.4 billion
Digicel mobile phones are ubiquitous in the Caribbean. Yet, the company has been battling declining revenues and increasing operating costs for years. The reason? The industry-wide trend of declining high-margin voice revenue versus increasing low-margin data usage among its subscribers. Digicel cable television and broadband businesses, also, have not been able to offset the losses in phone operations. Citing “unsustainable volumes of funded indebtedness,” the Jamaica-headquartered, Bermuda-incorporated, Irish-owned company filed for bankruptcy in New York in May.
9) VALARIS
Country: United Kingdom
Liabilities: $7.85 billion
You already know the story: the multi-year slump in commodity prices, only deepened by the pandemic, forced many oil and gas firms to default on their debt. Among them, the largest offshore and well drilling company in the world, London-based Valaris, which filed for Chapter 11 bankruptcy protection on August 19.
8) MCDERMOTT INTERNATIONAL
Country: United States
Liabilities: $9.86 billion
It didn’t take the coronavirus epidemic for oilfield services company McDermott International to default on its loans. Yet another casualty of low prices and record-breaking debt, McDermott entered Chapter 11 reorganization in January. It has since then emerged from proceedings through a restructuring plan that included the sale of its subsidiary Lummus Technology. With oil prices set to rebound in 2021, optimism seems to be back at the Houston-based company.
7) THAI AIRWAYS
Country: Thailand
Liabilities: $10 billion
Thailand’s national carrier used to be known for having the best service among Asian airlines. Not anymore, according to its customers, and that might have to do with the fact that Thai has recorded net losses for seven of the past 10 years, making it difficult to invest in the necessary improvements and upgrades. The pandemic dealt a final blow to the company, which in May petitioned for bankruptcy protection (or “debt rehabilitation,” as it is called in Thailand) claiming an estimated debt burden of 300 billion baht at the time of the filing, roughly equivalent to $10 billion.
6) CHESAPEAKE ENERGY CORPORATION
Country: United States
Liabilities: $11.79 billion
A decade ago, Oklahoma City-based Chesapeake Energy helped turn the US into a global powerhouse by pioneering fracking, the technique of extracting oil and gas from rock formations by injecting high-powered water and chemicals. By the end of June this year, buried under a mountain of debt, it was bankrupt and delisted from New York Stock Exchange.
5) ASCENA RETAIL GROUP
Country: United States
Liabilities: $12.5 billion
What can amass more debt than a large retail chain? An umbrella company that owns several retail chains, of course. That is the case of Ascena, which filed for bankruptcy in July and counted among its subsidiaries household names such as Ann Taylor, Loft, Lou & Grey and Lane Bryant. In November, Ascena announced that the private equity firm Sycamore Partners had agreed to acquire and relaunch the portfolio of brands with the commitment to retain about 900 of the 1,500 retail locations throughout the U.S. Thousands of direct and indirect jobs will be lost.
4) INTELSAT
Country: Luxembourg
Liabilities: $16.8 billion
The global pandemic forced the already struggling Luxembourg and Virginia-based satellite operator to file for Chapter 11 in May, a move aimed at staying in business while waiting for the proceeds from the auction of one of its spectrums to be repurposed for 5G technology.
What does Covid-19 have to do with satellites? Most broadcast and cable tv providers in the U.S. rely on Intelsat to distribute their programming, but the near-total absence of live sporting events had a major impact on the company. The ban on traveling weighed on its revenues as well, as an important portion of the business is represented by communication services to aviation and maritime industries.
3) LATAM AIRLINES
Country: Chile
Liabilities: $17.96 billion
It is the largest airline in South America and the largest to enter into administration this year globally. With its affiliates in Brazil, Peru, Colombia, Ecuador, and the U.S., Latam Airlines filed for Chapter 11 bankruptcy protection in New York in May. It faced many of the same problems as its counterparts in the region and around the world during the pandemic, except its pile of debt was much, much greater.
2) FRONTIER COMMUNICATIONS
Country: United States
Liabilities: $21.86 billion
The internet, TV, and phone company initiated business rescue proceedings in April. With a debt burden—according to consultancy firm BankruptcyData—close to $22 billion, it is the biggest telecom bankruptcy since the Worldcom Inc. fiasco in 2002.
Frontier operates in 29 states across the U.S. in predominantly rural areas and small and medium-sized cities. Amid costly acquisitions and countless complaints of poor-quality service, its financial collapse has been several years in the making. Bankruptcy proceedings, while likely to save the company, won’t make customers’ wifi any faster.
1) HERTZ
Country: United States
Liabilities: $24.3 billion
“The impact of Covid-19 on travel demand was sudden and dramatic, causing an abrupt decline in the company’s revenue and future bookings,” said Hertz Global Holdings in a statement on May 22. The same day, the company—which began in Chicago in 1918 by renting a dozen Model T Ford cars—filed for Chapter 11 in Delaware. By then, Hertz had already furloughed or laid off 20,000 employees, or about one-half of its global workforce.
Yet again, the pandemic alone doesn’t explain how this giant with 12,400 corporate and franchise locations worldwide managed to drive itself into bankruptcy. With ballooning costs related to fleet maintenance and location leases and new competition from the likes of Uber and Lyft, the debt had been piling up for quite some time. Covid-19 only exacerbated these problems and in October the stock was delisted from the New York Stock Exchange.
