Bankruptcy among organizations affected by the pandemic
The ongoing COVID-19 pandemic has already laid a major setback for a plethora of companies who were operating well before the inception of the outbreak. It has obliged them to take unpredictable decisions right now and these seem like a huge burden for already struggling firms. The majority are on the verge of declining and falling into bankruptcy. Lockdowns and restrictions had dented some of the company’s hopes of resurrecting their financial as well as product structures.
In addition to it, the imposition of lockdowns had enervated the demand for all kinds of goods and services, thereby adding another misery into companies hopes of reviving from this vicious time period. During the past three to four months, nearly 40 million people have pleaded for jobless benefits. Numerous bankruptcy cases are being filed daily and the trend has been rising at a rapid pace. According to data from the American Bankruptcy Institute (ABI), around 600 commercial chapter 11 filings were seen in the month of April and May, which is an increase of 26% from the previous year (2019). Notable bankruptcy filings comprise of the Diamond Offshore Drilling, Intelsat, J. Crew and so on.
Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs, debts, and assets, and for that reason is known as "reorganization" bankruptcy.
Diamond Offshore Drilling
Diamond Offshore Drilling Diamond Offshore Drilling, Inc. is an offshore drilling contractor. The company is headquartered in Katy, Texas, United States, and has major offices in Australia, Brazil, Mexico, Scotland, Singapore, and Norway. The company operates 15 drilling rigs including 11 semi-submersible platforms and 4 drillships. n 2019, the company's revenues were primarily from Hess Corporation (28.9%), Occidental Petroleum (20.6%), Petrobras (19.5%), and BP (3.1%). Operations in the United States accounted for 52.5% of the company's revenues in 2019.
On the other hand, in 2020, this company had succumbed to the ominous effects of the pandemic. This company filed for Chapter 11 Bankruptcy on April 26th. The key factors that ebbed their sales and performance were weakening demand for oil and price war between OPEC and Russia. Before filing for bankruptcy, the firm had omitted an interest payment and withdrew $400 million under a credit facility. The company lost $357 million last year -- nearly twice the loss it published in 2018 -- as revenue fell 12% to just under $1 billion. It has posted losses in four of the last five years, with only a narrow profit of $18 million in 2017. Over the last five years, its losses total $1.2 billion. Adding to its pile of problems, the price of oil has slumped due to dwindling demand created by the stay-at-home orders around the world.
Intelsat is a communications satellite services provider headquartered in the USA. At the end of 2019, the company has posted almost $15 billion in debt. It had also skipped a $125 million interest payment in April, deepening its wound. Intelsat, which offers satellite services to customers in the media and government sectors, reported that it witnessed a staggering decline in its demand, mainly due to Coronavirus. Due to the presence of a huge debt, it had secured $1 billion in debtor-in-possession financing. This would help them with their liquidity crisis as well as restructuring and reforming processes. At the end of 2019, it had established that it achieved a revenue of $2.1 billion, which might not be the case right now.
J. Crew Group, Inc., is an American multi-brand, multi-channel, speciality retailer. The company offers a collection of women's, men's, and children's apparel and accessories, including swimwear, outerwear, bags, sweaters, jewellery, shoes etc. The New York firm filed for bankruptcy on May 4 due to its plummeting sales and enormous value of debt. It has planned to get rid of some of its debts by taking its more successful Madewell brand public in 2020. But all of it was shattered by COVID-19. This pandemic had nixed the IPO in March and sparked an imminent future ahead for the company. According to a report, it had $2.5 billion in annual sales, but it started to drip amidst the pandemic. As part of its bankruptcy norms, J. Crew’s lenders will convert around $1.7 billion of its debt into equity. It also withdrew $400 million from current lenders in order to work efficiently and to restructure the company during this pandemic.
The era of COVID-19 had put the business world to a halt for the past few months. As you can see here, Large companies have started facing problems of bankruptcy, while small companies have disappeared silently without people being aware of it. This sums up the workload this era had put to the world of business. The new list of names may come up among the bankruptcy’s list in the future and nobody could utter a word against this possibility. Let it be food, lifestyle, work or even bankruptcy, nothing is going to change unless the COVID-19 era vows to vanish from our world.
Authored by: Anantha Krishna