Edward Altman has bad news for the nation’s publicly-traded businesses struggling to stay solvent since COVID-19 struck three months ago.
The 79-year-old finance professor emeritus at New York University’s Stern School of Business and creator of the Z score, a formula that predicts business failures, estimated 2020 will challenge the record number of bankruptcies set following the 2008 economic crisis, The New York Times reported.
Despite predictions for an economic rebound in the second half of 2020, Altman said he expects an avalanche of filings by companies with $1 billion or more in debt. There has been “an explosion in corporate debt,” Altman added.
“The really hurting companies are too far gone to be saved,” he told the newspaper.
Altman’s Z score, created in 1968, calculates data found on a company’s annual 10-K report, including profitability, leverage, liquidity, solvency, and other activity to predict whether a company has a high probability of becoming insolvent.
PYMNTS has reported Hertz, 24 Hour Fitness, J.Crew Group Inc., Neiman Marcus Group, JCPenney, Brooks Brothers, New York & Co., Stage Stores and other household name companies have said they are considering bankruptcy filings amid the crisis.
He said many others are on the brink. Chesapeake Energy, once the nation’s second-largest natural gas company is saddled with $9 billion in debt; Tailored Brands, the parent of Men’s Wearhouse, Jos. A. Bank and K&G, recently disclosed that it may file for bankruptcy protection, the report said.
Last year, more than 6,800 companies filed for Chapter 11 bankruptcy protection. By year’s end, the number of petitions from the worst economic downturn since the Great Depression could pack federal courthouses, exacerbating any chance these companies can be spared, bankruptcy experts told the Times.
Altman expects at least 66 companies with more than $1 billion in debt to file this year. In 2009, the number was 49. He also predicted 192 bankruptcies involving at least $100 million in debt, which would trail 2009’s record of 242.
Robert J. Keach, a director of the American College of Bankruptcy, told the Times that companies have kept bankruptcy at bay by saving cash, furloughing workers and taking advantage of coronavirus stimulus programs.
But as those expire, he said, companies will use up the cash and bankruptcy filings are likely to skyrocket.
“Bankruptcy can’t print money for those companies,” said Robert E. Gerber, a retired bankruptcy judge in the Southern District of New York. “But it can give a good number of them a chance of survival.”