Analyst: Chapter 11 bankruptcy likely for a huge consumer brand

It has been a bleak period for well-known brands and more bankruptcies are expected, according to one key financial monitor.

Feb 7, 2024 - 04:30

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When consumers tighten their purse strings and borrowing money becomes more expensive, or in some cases, impossible, companies get forced into bankruptcy.

In many cases, big name brands have struggled to recover the money they lost during pandemic-era closures. Covid forced both Party City and David's Bridal into Chapter 11 bankruptcy because there weren't many parties or traditional weddings during the covid lockdown and social distancing periods.

Both of those companies narrowly survived, but others including Bed Bath & Beyond, Christmas Tree Shops, and Tuesday Morning did not. Those brands had loyal followings but generally sold non-essential items and had many locations closed for months.

During that period expenses did not go away and all three retailers added to a debt load that ultimately they could not afford to pay. When that happens a company has limited options. It can borrow more money — something that's harder to do with interest rates being higher — or it can file Chapter 11 bankruptcy to negotiate better terms or make other deals with its creditors.

Debtwire's Global Head of Restructuring Data Catherine Corey shared with TheStreet that her company's data shows that more Chapter 11 bankruptcy filings are coming.

“2024 is poised to be another busy year for bankruptcy in the US, according to data from Debtwire’s Restructuring Database," she said.

Corey cited the healthcare industry as being particularily at risk as DebtWire correctly forecast the recent Chapter 11 filing by Cano Health.

"Longer term, the retail sector is looking likely to remain in the spotlight," she added.

Dish faces very high cash needs

Dish Network, which is now a subsidiary of EchoStar, has limited cash and massive expenses. The company, for example, has until April to pay T-Mobile roughly $3.5 billion for wireless spectrum it would use to build out its 5G network.

CEO Charlie Ergen has been working to push the company's debt farther out. That's something Corey commented on.

"Dish recently terminated a significant exchange deal aimed at extending its debt maturity, involving over $6 billion in unsecured notes maturing over the next five years," she shared.

In this case, the DebtWwre executive does not expect a formal bankurptcy filing.

"The reasons for pulling the deal remain unclear. Despite the need for Dish to address its enormous capital structure, an actual bankruptcy seems unlikely as Ergen will fight tooth and nail to keep control of the company," she wrote.

Debtwire bases its findings on its proprietary Likely to Distress (LTD) score which provides a precise outlook on the likelihood of stress, distress, or restructuring for corporate issuers. The LTD leverages 20+ inputs from over 30 years of proprietary data.

AMC faces Chapter 11 bankruptcy risk

While Dish finds itself between two business models, as it tries to build out a 5G network, AMC Entertainment (AMC) - Get Free Report has been suffering from declining interest in its core product.

People simply got to the movies less often as domestic box office remains $2 billion below its 2019 peak. That's not something that's likely to change as fewer movies get released to theaters and companies like Walt Disney are rethinking its overall theatrical release schedule.

Corey explained the movie theater company's ongoing financial problems.

"AMC Entertainment has long been an issuer to watch as it grapples with post-pandemic challenges and faces ongoing difficulties following last year’s writers and actors strike. While the company holds a decent amount of cash for the short term, its negative free cash flow necessitates addressing its capital structure soon. Last week’s downgrade by S&P to SD from CCC+ reflects a series of debt exchanges," she shared.

The movie theater company has been kept afloat by secondary stock issues that took advantage of its time as a meme stock when its price was pushed higher as part of an online phenomenon.

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