Arizona, Colorado & Nevada Hardest Hit by Q3 Middle Market Business Bankruptcies

Resolute Commercial Services

Middle market businesses in Arizona, Colorado and Nevada have been hit the hardest by COVID-19 in the nine-state Rocky Mountain West region, according to bankruptcy statistics outlined in the current Resolute Index prepared by Resolute Commercial Services.

Identifying Regional Trends

The Resolute Index is a quarterly summary of noteworthy trends in bankruptcy filings and the overall business climate in the Rocky Mountain West region of the United States, which includes Washington, Oregon, Idaho, Montana, Wyoming, Nevada, Utah, Colorado and Arizona.

During the third quarter of 2020, Colorado accounted for 28%, Arizona for 22% and Nevada for 13% of all middle market business bankruptcies with at least $1 million in liabilities in the Rocky Mountain West. Businesses in the hospitality, real estate, and manufacturing industries have been the most impacted by bankruptcy. Companies with $10 million to $500 million in annual earnings are generally classified as middle market.

“We’re just beginning to see the impact of the pandemic on business bankruptcies,” says Jerry Foster president and founder of Resolute. “We estimate 30% to 40% of businesses in industries highly impacted by COVID-19 have gone inactive since February and many will never return. As many more companies and lenders realize the full impact of the pandemic, it could be a difficult 2021 for them.”

Help for Businesses Considering Bankruptcy

For businesses considering bankruptcy, a new section of the United States Chapter 11 bankruptcy code, called Subchapter V, is being used extensively, according to the Resolute Index.

More than 55% of middle market businesses filing bankruptcy in the Rocky Mountain West during the third quarter of 2020 utilized Subchapter V. This subchapter allows business owners to retain equity and continue operating their companies while paying off unsecured creditors over three to five years.

“We anticipate that Subchapter V will enable many more businesses to survive the COVID-19 pandemic and recover from bankruptcy,” says Foster.

The subchapter was added to the bankruptcy code on Feb. 19, 2020, just before the first impacts of the COVID-19 pandemic were felt. A time-limited cap to qualify for Subchapter V has been temporarily increased from $2.7 million in secured and unsecured debts to $7.5 million by the CARES Act.

Foster recommends that businesses qualifying for Subchapter V bankruptcy under the increased debt cap, proceed before March 27, 2021, when the temporary cap is set to expire.

Other key findings from the third quarter Resolute Index report include:

  • Receiverships have decreased significantly from past years, as lenders provide borrowers extra leeway on their payments due to the COVID-19 pandemic.
  • Workout filings are expected to rise in 2021 as lenders make difficult decisions about the fate of struggling assets.
  • WARN Act notices filed in the state of Arizona, which show an employer with more than 100 workers is planning to make mass layoffs, peaked in May and declined dramatically during the third quarter.

The full Resolute Index can be found here.

Resolute is an independent business advisory firm focused on diagnosing and resolving the challenging issues impacting middle market companies with annual earnings between $10 million and $500 million. Resolute provides solution-oriented fiduciary, financial, business, and real estate advisory services. Its services are utilized by businesses, financial institutions, law firms, and state and federal courts.

Since its founding in 2008, Resolute has provided services in 33 states, with a strong presence in the Southwest and Mountain West regions. Its experienced staff has managed over $1 billion in distressed assets and sold more than 75 assets/enterprises with a total value of more than $250 million.

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