Co-authored by Conray C. Tseng
On January 14, 2011, we published the results of our first ever reader survey, held during the week of January 6, 2011, where we asked you to dust off your crystal ball and give us your predictions for 2011. Most of the questions we asked BFR Blog readers were with respect to the outlook for the U.S. economy, and for the restructuring industry in particular for 2011. At the half-year mark, we thought we’d check in and give you an update. While there’s still another six months to go, the results make for interesting reading. Take a look:
How many super-mega chapter 11 cases (assets greater than $1 billion) will file in 2011?
Here’s what people said…
| None | 0.0% |
| 1-10 | 56.5% |
| 11-20 | 34.7% |
| 21-30 | 8.9% |
| 31-40 | 0.0% |
| Greater than 40 | 0.0% |
As of July 7, 2011, only two chapter 11 filings have assets greater than $1 billion, Borders Group, Inc. with $1.425 billion in assets and TerreStar Corporation with $1.37 billion in assets. The third largest filing this year is Nebraska Book Company with $657 million and it goes down hill from there. The 10th largest filer this year is most probably the Los Angeles Dodgers, with assets estimated to be a shade below $300 million.
As a point of comparison, there were 19 super-mega chapter 11 cases in 2010. In 2009, the 20th largest case was Station Casinos with $5.8 billion in assets.
So congratulations, BFR Blog readers! It looks like 56.5% of you are on track for a correct prediction. Our next survey might need to break up the 1-10 bracket into ten 1% brackets so that we can determine who the real oracles are!
What will the trailing 12-month default rate for non-investment grade corporate debt (junk bonds) be as of December 31, 2011?
Here’s what people said…
| Less than 2% | 11.4% |
| 2-3% | 39.8% |
| 3-5% | 39.8% |
| 5-10% | 6.5% |
| 10-15% | 2.4% |
| Greater than 15% | 0.0% |
If the mid-year trend sticks around through year end, it looks like 88.6% of you will have overshot this one. According to Business Wire, the trailing 12-month U.S. high yield default rate is just 1.1%. Our previous survey had the lowest option to be less than 2% – who would have thought that in 2011 we might need to split that option into two choices: 0% to 1% and 1% to 2%? We sure didn’t.
What industries will face financial distress in 2011?
Here is what people said…
| Airlines | 18.5% |
| Automotive | 5.0% |
| Banking and Finance | 30.3% |
| Commercial Real Estate | 71.4% |
| Energy | 14.3% |
| Homebuilding | 49.6% |
| Media/Communications | 32.8% |
| Retail | 52.9% |
| Technology | 5.0% |
| Telecommunications | 10.9% |
Although we didn’t specifically ask readers to predict the number of bankruptcy filings in these industries, here’s a list of the major chapter 11/15 filings with liabilities over $100 million for this year so far –
| Industry | Chapter 11/15 Debtors with Liabilities Greater than $100 M |
Number |
| Airlines | N/A. The airlines are still flying high… | 0 |
| Agriculture (New) | Allen Family Foods, Inc. | 1 |
| Automotive | N/A. And a good thing at that, the automotive industry has had a rough past couple of years. | 0 |
| Banking and Finance | N/A. Just like the carmakers, bankers can rejoice at this bit of good news. | 0 |
| Commercial Real Estate | N/A. The restructuring work for commercial real-estate has been booming, but no filings over $100m yet. | 0 |
| Energy | Seahawk Drilling, Inc. | 1 |
| Entertainment/Sports (New) | 4Kids Entertainment Los Angeles Dodgers |
2 |
| Insurance | Global Central and Reinsurance Company Ltd. (Ch. 15) New Stream Secured Capital, Inc. |
2 |
| Health Care & Medical (New) | Angiotech Pharmaceuticals, Inc. (Ch. 15) Verdugo Mental Health |
2 |
| Homebuilding/Residential Properties | Barnes Bay Development, Ltd. Maronda Homes, Inc. |
2 |
| Hospitality and Gaming (New) | Aliante Gaming, LLC ALT Hotels Ambassadors International Indianapolis Downs, LLC MSR Resort Golf Course |
5 |
| Media/Communications/ Publishing |
Blockbuster Canada Co. (Ch. 15) Caribe Media, Inc. Nebraska Book Company; Pegasus Rural Broadband; Summit Business Media Holding Company |
5 |
| Manufacturing (New) | Berkline/BenchCraft Holdings, LLC Bowe Bell & Howell Holdings, Inc. Constar International Integral Nuclear Associates, LLC Javo Beverage Company, Inc. Raser Technologies, Inc. The Merit Group, Inc. US Eagle Corporation Vitro SAB de DV (Ch. 15) |
9 |
| Restaurants (New) | Giordano’s Enterprises, Inc. Perkins & Marie Callender’s Inc. Sbarro, Inc. |
3 |
| Retail | Appleseed’s Intermediate Holdings, LLC Anchor Blue Holdings Borders Group, Inc. DSI Holdings, Co. (Deb Shops, Inc.) Harry & David Holdings, Inc. Nebraska Book Co. Robb & Stucky Limited LLP Signature Styles, LLC Ultimate Acquisition Partners |
10 |
| Personal Services (New) | Jackson Hewitt Tax Services | 1 |
| Technology | With the current tech/social bubble, maybe this isn’t surprising. | 0 |
| Telecommunications | TerreStar Corporation Satelites Mexicanos, S.A. |
2 |
| Transportation | N/A. No filings above $100m have been delivered in this sector this year! | 0 |
It looks like most respondents to our survey were right in picking retail as one of the industries to face financial distress in 2011, with a whopping (well, at least, for 2011) 10 filings so far this year.
Manufacturing, a new sector that we’ve added here and that wasn’t part of our initial survey has surged into second place with nine filings so far this year. Hospitality and Gaming is another sector we’ve needed to add, with five filings in the sector this year, while our existing Media/Communications/Publishing sector has also seen five filings for debtors with liabilities exceeding $100 million, as predicted by 32.8% of our respondents.
Despite 49.6% of readers picking homebuilding/residential properties to face financial distress, the industry saw only two major filers so far in 2011
As a big surprise, the commercial real estate industry had zero bankruptcy filings with liabilities over $100 million, despite over 71.4% of respondents picking the industry as likely to face financial distress. That being said, financial advisers and law firms are busy with plenty of out-of-court commercial real estate restructurings, so the statistics look reliable. 30.3% of our respondents also predicted the banking and finance sector facing a high degree of financial distress in 2011, though despite a rocky road, no major financial industry companies have filed for chapter 11 this year, although the FDIC is still keeping busy closing failed banks.
What will the Dow Jones Industrial Average closing price be on December 31, 2011?
Here’s what people said…
| Less than 9,000 | 1.6% |
| 9,001 to 10,000 | 1.6% |
| 10,001 to 11,000 | 10.5% |
| 11,001 to 12,000 | 29.0% |
| 12,001 to 13,000 | 50.8% |
| 13,001 to 14,000 | 5.6% |
| Above 14,000 | 0.8% |
After jitters caused by declining economic numbers and European sovereign debt concerns, the Dow closed the week of June 20-24 just below 12,000 at 11,934.66, and is currently over 12,000. If the market goes no where for the next 6 months, almost 80% of our respondents will have called this one correctly.
What will the yield on a 10-year US Treasury note be on December 31, 2011?
Here’s what people said…
| Below 2.0% | 0.0% |
| 2.0 to 2.5% | 1.6% |
| 2.5 to 3.0% | 5.6% |
| 3.0 to 3.5% | 16.9% |
| 3.5 to 4.0% | 42.7% |
| 4.0 to 4.5% | 28.2% |
| 4.5 to 5.0 % | 3.2% |
| Above 5.0% | 1.6% |
As of June 7, 2011, the 10-year U.S. Treasury note is 3.125%. At the half-year mark, it looks like most of our readers were slightly more optimistic on yield than turned out to be the case. Still, there’s still six more months to go to be proven right!
So there you have it. The world as you saw it in January 2011, and the world as it is now. Albert Einstein famously said never to think of the future, as it comes soon enough. In our case, the future will be here in six months time, when we report back to you on the full-year 2011 results, and on your efforts to predict the outlook for 2011. Thanks for taking part!