The number of Texas companies looking to reorganize and restructure their debt under Chapter 11 bankruptcy proceedings hit a record high in the first half of 2017. The number of bankruptcy filings in Houston have also hit record levels.
In the first six months of 2017, 649 businesses filed for Chapter 11 in Texas federal courts; this represents a 44% increase over the same period in 2016. Most strikingly, this is also a 12% increase over the first six months of 2009, the year bankruptcies peaked during the financial crisis and Great Recession.
According to federal bankruptcy courts in the Southern District of Texas, which also includes, Houston, a big surge of new filings came from small- and mid-sized oil and gas services companies, pipeline owners, and businesses involved in offshore drilling. Some of the oil and gas companies affected include Azure Midstream Partners LP (NASDAQ:FISH); GenOn Energy, Inc; Vanguard Natural Resources LLC (PINK:VNRSQ); and Allpoints Oilfield Services LLC.
In the Southern District, 314 companies filed for bankruptcy during the first half of 2017, a 58% increase from 2016, the previous record year.
Why are so many oil and gas companies filing for chapter 11 in 2017? A lot of oil and gas companies took on serious amounts of debt between 2010 and 2014 when commodity prices were between $80.00 and $110.00 per barrel. Since then, however, oil has traded between $40.00 and $60.00 per barrel. In early 2016, oil briefly traded for below $30.00 per barrel.
Many oil and gas industry businesses that were looking to file for bankruptcy in 2016 held off until 2017, hoping for oil prices to climb into the $40.00-to-$50.00-per-barrel range because it would give them more options when it came to restructuring.
Companies that are cash-flow positive are in a much better position when they head into bankruptcy. The whole issue is about dealing with debt and not restructuring the entire operation. If companies are losing money and are drowning in debt going into bankruptcy, then they are at the mercy of lenders and banks.
The oil and gas industry is not the only sector mired in bankruptcy proceedings. According to bankruptcy data, healthcare companies are also feeling financial pressure. In fact, healthcare and energy together account for the majority of all Chapter 11 restructurings filed in Texas in the first half of 2017 and nearly 66% of all business bankruptcies filed in the Southern District.
Retailers and restaurant chains also make up a big portion of firms filing for Chapter 11. Some well-known brands that have filed for bankruptcy include Ben Hogan Golf Equipment Company, Joe’s Crab Shack, Luke’s Locker, and Texas Land and Cattle Steak House Company.
“Texas Business Bankruptcy Filings Spike Again,” The Texas Lawbook, last accessed July 14, 2017.
“Oil woes are still spilling into bankruptcy courts,” Houston Chronicle, July 12, 2017.