August 13, 2020

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Covid-19 Is Bankrupting American Companies at a Relentless Pace

Jul 10, 2020 | , , ,

Retailers, airlines, restaurants. But also sports leagues, a cannabis company and an archdiocese plagued by sex-abuse allegations. These are some of the more than 110 companies that declared bankruptcy in the U.S. this year and blamed Covid-19 in part for their demise.

Many were in deep financial trouble even before governors ordered non-essential businesses shut to help contain the spread of the virus. Most will reorganize and emerge from court smaller and less-indebted. The hardest hit, however, are selling off assets and closing for good.

They include plenty of big, iconic names. Hertz and J.C. Penney and now Brooks Brothers, too. The vast bulk, though, are small and medium-sized businesses scattered across the country. Their downfall might not normally garner much attention, but it does underscore the full extent of the damage Covid-19 has inflicted on the economy.

The list compiled for this story is based on court records, statements or interviews in which company executives explicitly linked the virus to their filing. It is only a snapshot of the thousands of corporate entities that have landed in bankruptcy court since the pandemic took hold in March.

Bankruptcies of a Pandemic

The companies that have sought to reorganize or liquidate at least partly because of Covid-19 run the gamut of corporate America. Some had billions of dollars in assets. Others had only a handful of employees on payroll.

Among the smallest is Sugarloaf Craft Festivals, which organized artist fairs across the country. It simply saw no way to keep going in the era of social distancing. Ditto for Bounce For Fun, which rented bounce houses and water slides for school parties and spring festivals in the Dallas area. The owner says cancellations had hit 100% this year, with little hope for a rebound next season.

Company Industry Bankruptcy Date Assets ($)
Hertz Travel, Lodging and Leisure May 22 25.8B
Latam Airlines Travel, Lodging and Leisure May 25 21.1B
Frontier Communications Telecoms, Media and Technology April 14 17.4B
Chesapeake Energy Energy June 28 16.2B
J.C. Penney Retail and Restaurants May 15 8.6B

American Addiction Centers

Operator of rehab centers in Tennessee with $449.3M estimated assets
Filed for reorganization on June 20
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The company, which has 26 facilities treating people with substance-abuse issues in eight states, was already having trouble servicing its debt payments when the coronavirus hit the U.S. Stay-at-home orders and travel restrictions helped drive a decline in outpatient visits and inpatient admissions, while the company was forced to spend time and resources keeping its facilities open with enough staff and personal protective equipment so they and the patients would be safe.

“In May, admissions started to improve but have not yet returned to pre-Covid-19 levels,” American Addiction Centers said in a court filing when it declared bankruptcy. All incoming patients are tested for the coronavirus and quarantined from the general population while awaiting test results, which restricts the number of available beds.

Chief Executive Officer Andrew McWilliams found a silver lining in the pandemic, noting that the grim national mood is actually good for the company. “The heightened stress, anxiety, fears and social isolation in this unprecedented time has prompted more patients and their families to seek treatment, pushing demand for our services higher,” he said in a statement announcing the bankruptcy.

Bounce For Fun

Bounce house rental company in Texas with $100.0K estimated assets
Filed for liquidation on June 17
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A Bounce For Fun attraction. Source: Bounce For Fun

For almost two decades, Bounce For Fun helped churches, schools and homeowner associations make their parties memorable for kids.

The Frisco, Texas-based company had amassed a catalog of more than a hundred attractions available for rent, including bounce houses, water slides and obstacle courses. It even offered a 24-foot rock-climbing wall and a trackless train.

But just as its peak season was about to kick off, states including Texas banned large gatherings, shut down schools and asked residents to stay at home.

“Before mid-March, we were on track to have a record year,” Paul Sumrow, the company’s owner, said in an interview. “When the coronavirus hit, we had 100% cancellations.”

Sumrow, who has only one full-time employee, obtained a loan through the Paycheck Protection Program but that was hardly enough to keep going with 85% to 90% of this year’s revenue gone.

“The numbers just don’t work,” he said. “I am not willing to go deeper and deeper when there is nothing on the horizon that says we are coming back or not coming back.”

Sugarloaf Craft Festivals

Craft fair operator in Maryland with $0.5M estimated assets
Filed for liquidation on June 15
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For 45 years, Sugarloaf offered artists across the U.S. a market for their creations, including jewelry, pottery and textiles. Its 11 annual festivals, which featured demonstrations and hands-on workshops, ground to a halt in March as social gatherings were banned.

“We’ve survived through wars, recessions, terrorist attacks, political upheaval, hurricanes, tornadoes, blizzards and more,” the company wrote on its website as it announced it was shutting down. “With no cash flow coming in, even a well-managed company cannot survive indefinitely.”

Northern Bear

Diner owner in California with $50.0K estimated assets
Filed for liquidation on June 8
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Steve Andrews was a general contractor who built eateries for other people before he and his wife, Debbie, ran two of their own in Northern California. For 15 years, their Black Bear Diners were popular places to sip coffee and exchange local gossip in the two small towns where they operated before the pandemic hit.

Forced to close their doors, the couple furloughed 50 of their 65 employees and tried to offer takeout. But diner food is comfort food, Andrews said. People came for breakfast, lunch and company. Takeout didn’t work.

“We were hemorrhaging so much money, I just couldn’t do it anymore,” Andrews, 67, said in an interview.

They tried to borrow about $350,000 through the Paycheck Protection Program, but computer problems at their bank spit out the application before it could be processed in time to qualify. Their insurance company rejected their claim for damages, even though they had paid for loss-of-income coverage. He and Debbie, who is 68, were forced to put the diners into bankruptcy in June and walk away. They have since sold their house and moved to Southern California looking for a fresh start at a time when they had expected the diners to subsidize their retirement.

Specialty’s Cafe & Bakery

Bakery chain in California with $50.0K estimated assets
Filed for liquidation on May 27
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A box of cookies from Specialty’s location in downtown Los Angeles. Photographer: Joe Magnano

Specialty’s sandwiches, salads and pastries had become a staple for thousands of office workers in downtown San Francisco and across the Bay Area. On a typical day, its Mountain View location would be packed with tech workers from nearby companies including Alphabet Inc.’s Google and Samsung Electronics Co.

Yet after 33 years in business, shelter-in-place restrictions “essentially destroyed” Specialty’s market, according to the trustee for the estate. With some of its leases running more than $30,000 a month, the company saw no choice but to shut its doors for good.

In a bittersweet ending to its three-decade history, Specialty’s gave away frozen dough for some 180,000 cookies to customers who showed up at its Redwood City warehouse.

Gold’s Gym International

Fitness chain in Texas with $50.0M estimated assets
Filed for reorganization on May 4
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Gold’s Gym in Venice, California, on Oct. 30, 2000. Photographer: Jason Kirk/Hulton Archive/Getty Images

Retired Merchant Marine veteran Joe Gold launched his fitness empire in a rough cinder-block building near Muscle Beach in Venice in 1965 with weight-lifting equipment he built himself. Arnold Schwarzenegger joined that first Gold’s Gym a few years later, and over 55 years the business began to franchise and grew to 700 locations.

The company had its strongest-ever year of worldwide growth in 2019, but the coronavirus, social distancing and gym closures hit its business like a 500-pound dumbbell. “No single factor caused more harm to the debtors’ business than the current Covid-19 pandemic,” the company said in a court filing when it furloughed almost 4,600 employees and declared bankruptcy.

Gold’s closed about 30 gyms when it couldn’t renegotiate the leases with landlords, abandoning some equipment, and found other locations where members of its shuttered facilities could go to work out. The company now is trying to sell itself via auction, with its majority shareholder providing an opening bid of $80 million. “We are absolutely not going anywhere,” Adam Zeitsiff, Gold’s CEO, told members and employees in a video in May.

The Roman Catholic Church for the Archdiocese of New Orleans

Non-profit in Louisiana with $100.0M estimated assets
Filed for reorganization on May 1
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A reverend prepares to bless residents on Holy Wednesday outside St. Dominic Catholic Church in New Orleans, Louisiana, on April 8, 2020. Photographer: Chris Graythen/Getty Images

Problems at the New Orleans Archdiocese started long before Covid-19. Allegations of sexual abuse had been piling up for decades, leading to the removal of dozens of priests and deacons, according to a report the Archdiocese released in 2018.

Like more than 20 other U.S. church districts that have sought bankruptcy protection to settle such claims in an orderly way, the Archdiocese – with roots that predate the 1718 founding of New Orleans – filed for Chapter 11 on May 1. It listed assets and liabilities of between $100 million and $500 million.

In the court documents, Father Patrick R. Carr said the Archdiocese faced financial challenges ranging from lawsuits alleging sexual abuse to a drop in “offerings and collections at Masses which are no longer publicly celebrated due to the Covid-19 pandemic.”

Klausner Lumber

Sawmill in Florida with $100.0M estimated assets
Filed for reorganization on April 30
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A truck loaded with logs pulls into the Klausner lumber mill in Live Oak, Florida, on July 28, 2015. Photographer: John Raoux/AP Photo

By early 2020, Klausner Group, a lumber producer based in Austria, was already running out of options to salvage its sawmill in Live Oak, Florida. Cost overruns and disappointing sales, combined with financial challenges at the Austrian parent, had forced executives in the U.S. to consider a bankruptcy filing or a liquidation. But as Covid-19 began to spread throughout America, those plans were quickly thrown out the window. The executives packed their bags, shut the plant and left the country.

The rushed shutdown left the sawmill with no security guards or insurance. Employees who had learned they would no longer need to show up for work sued the company, alleging they weren’t given enough notice and hadn’t received their final paychecks. The U.S. counsel resigned after being left with unpaid invoices.

The Florida sawmill eventually filed for bankruptcy protection on April 30. Its newly appointed chief restructuring officer later would explain to the court that the entire management team and various engineers had returned hastily to Europe “in order to avoid a dangerous health situation in the U.S. and potential long-term travel restrictions.”

United Cannabis

Medical hemp company in Colorado with $1.0M estimated assets
Filed for reorganization on April 20
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Financial trouble at United Cannabis began with a classic imbalance between supply and demand. In November 2019, as the price of CBD plunged, the company laid off more than a third of its 150 employees, according to court documents.

Then came Covid-19. In dealing a blow to the global economy, the pandemic depressed sales of CBD, industrial hemp and derived products, leading to more job losses. A dispute with Ucann’s largest creditor, who tried to attach some of the company’s assets, eventually precipitated the bankruptcy filing on April 20.

Alpha Entertainment (XFL)

Professional sports league in Connecticut with $10.0M estimated assets
Filed for reorganization on April 13
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An XFL game in Houston, Texas, on Feb. 8, 2020 . Photographer: Thomas Campbell/XFL via Getty Images

The Houston Roughnecks were undefeated and had the best record in the inaugural season of the XFL, a new professional football league, when Covid-19 forced every major U.S. sports league to suspend their seasons. Alpha Entertainment, founded by World Wrestling Entertainment mastermind Vince McMahon, lost tens of millions of dollars in revenue when it canceled the remainder of the XFL season and fired about 500 football players.

As it prepared to file bankruptcy, McMahon lent the company $9 million with its assets as collateral, but he withdrew his bid to buy it out of bankruptcy in time for the 2021 season after other creditors complained. Now the company hopes to sell itself to another buyer in an auction next month. The premature demise of the league wasn’t bad news for everyone, though. Roughneck quarterback P.J. Walker, who led the XFL in touchdowns before the shutdown, signed with the NFL’s Carolina Panthers for a reported two-year $1.6 million contract.

Ravn Air

Regional airline in Alaska with $100.0M estimated assets
Filed for reorganization on April 5
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A Ravn plane picks up passengers in Napakiak on the Yukon Delta, Alaska, on April 19, 2019. Photographer: Mark Ralston/AFP via Getty Images

Alaska is twice the size of Texas but with few roads and many remote villages that can be reached only by airplane. As fears of Covid-19 spread in mid-March, some towns and villages around the state barred passenger flights into their communities.

Ravn Air Group, the biggest regional carrier in the state, saw passenger revenue drop by 90 percent. The company quickly ran out of money and filed for bankruptcy in early April, sparking alarm that the rural villages on its routes would be stranded without medical care, mail service and other supplies.

A free-for-all broke out. The mayor of the borough covering 95,000 square miles across the state’s far north tried to commandeer Ravn assets to ensure residents had food, medical transport and supplies but was blocked by the state attorney general. A patchwork of other regional airlines stepped in to take over some Ravn routes and business. The bankrupt company has since been approved for $30 million in federal coronavirus-relief funds and is trying to avoid liquidation by selling itself.

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