Business bankruptcies flooding Houston, with more anticipated
More Texas corporations filed for bankruptcy during the first half of 2020 than in any sixmonth period in the state’s history, and Houston has been hit hardest.
The number of businesses that filed to restructure between Jan. 1 and June 30 in the Southern District of Texas, which includes Houston, more than tripled from a year earlier, according to data from Androvett Legal Media research.
The data show that two bankruptcy judges in the Southern District of Texas have handled more complex commercial restructurings of large companies than any other federal district in the country.
The predicted wave of business bankruptcies is now hitting Texas full force, and legal experts suggested that just as many companies are likely to declare bank
ruptcy during the second half of this year because of the COVID-19 pandemic and the historically low oil and gas prices.
“We are still in the early onslaught of this wave,” said Munsch Hardt shareholder Kevin Lippman.
“The uniqueness about this bankruptcy wave is the breadth of it,” he said. “It is hitting every business sector — energy, retail, hospitality, real estate, airlines. And it is hitting everywhere — it is not isolated to one or two regions of the country.”
The data
There were 815 companies that filed for bankruptcy protection in the federal courts of Texas during the first half of this year, which is 236 — or 40 percent — more than in the first six months of 2009, the heart of the Great Recession, according to the Androvett data.
While all parts of Texas are experiencing economic pain for businesses, no region is being hit harder than Houston.
The Androvett data show that 602 companies filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of Texas in the first six months of the year — a 234 percent increase from the 180 filings during the second half of 2019.
By contrast, business bankruptcies in the Western District of Texas, which includes Austin, San Antonio and El Paso, jumped 33 percent in the period compared with the year earlier. Corporate restructurings in the Northern District, which includes DallasFort Worth, witnessed a 19 percent increase in corporate Chapter 11 filings during the first half of this year versus the final six months of 2019.
“There are still a lot of bankruptcies to be filed,” said Hunton Andrews Kurth bankruptcy partner Tad Davidson of Houston.
“On oil and gas upstream, I think we are in the middle of the bankruptcy wave. There are more restructurings in the pipeline,” said Davidson, who is advising Sable Permian Resources in its multibillion-dollar restructuring.
A favored court
Southern District Chief Judge David Jones of Houston said SDTX, as it is known in legal circles, has more complex corporate restructurings of $300 million or more than any other federal district in the nation.
“The goal was never to be busier than other districts,” the judge said. “The goal was to develop a bankruptcy court that I always wanted when I practiced law. It is about the case and not about the judge. And to have a bankruptcy court that is accessible and predictable.”
Alfredo Perez, a bankruptcy and restructuring partner at Weil, Gotshal & Manges in Houston, said the hard work of Jones and fellow bankruptcy Judge Marvin Isgur is the reason the Southern District is now one of the favored courts in the U.S. for large corporate restructurings.
“Both judges have strong business and energy industry backgrounds, and they understand how businesses operate,” Perez said.
The bankruptcy judges in the Southern District, led by Chief Judge Jones, issued new rules and procedures in 2015 for complex corporate restructurings that nearly all experts believe are more accessible and predictable for debtors.
It worked.
The 602 corporate bankruptcy filings in the Southern District are nearly three times as many as filed in the three other Texas districts combined. Even so, SDTX actually ranks second in total business bankruptcies filed in the U.S. so far in 2020, according to the Androvett data.
Delaware, which is where so many businesses across the U.S. are officially incorporated, ranks No. 1 with 787 Chapter 11 filings so far this year. The Southern District of New York is third with 456 corporate restructurings during the first half of 2020.
“These two judges are incredible, but they are handling such a large number of cases,” said Dan Winikka, a partner at Loewinsohn Flegle Deary Simon in Dallas. “If the rate of increase continues at this pace, there is going to be a backlog. It is going to be an issue.”
Jones said there is no reason for concern at this point.
“I don’t know how close we are to capacity,” he said. “We have not pushed our limits at all so far. Whether it takes 10 or 20 more cases each for us to reach our limit, I just don’t know.”