The numbers don't lie. You can be optimistic, have a happy outlook, and do many other things that try to paint a rosy picture. But at the end of the day, if a company runs out of money, it has to declare bankruptcy.
However, a Chapter 11 filing carries a certain level of hope. Basically, filing bypasses the death process and allows a company to negotiate with its creditors to see if they will accept stock instead of cash or even forgive some of the debt to keep the company afloat.
It is a risky process because it takes some control away from the company and hands it over to the bankruptcy court. In some cases, even when an agreement has been negotiated with creditors, a debtor who objects to the agreement can ruin it.
Related: Another pharmacy chain files for Chapter 11 bankruptcy
Additionally, the bankruptcy court could be sympathetic to customers whose orders were not met or find another reason that pushes a company from reorganization into Chapter 7 bankruptcy liquidation.
When a company prepares to file for Chapter 11 bankruptcy, it often keeps its cards secret. That doesn't mean there's no way to know which companies might be preparing to apply.
Debtwire, a service of ION Analytics, has a formula, the LTD score, that “provides an accurate perspective on the stress, distress or likelihood of restructuring for corporate issuers,” the company shared.
Developed by Debtwire's team of data scientists, engineers, and writers, the LTD scoring algorithm leverages more than 20 inputs from over 30 years of proprietary data. The LTD has a long history of predicting Chapter 11 filings and has bad news for three leading media and communications companies.
Image source: Shutterstock/La Calle
Debtwire predicts Chapter 11 bankruptcy filings
“A company with a score of 99 is one that we expect to file or initiate an out-of-court restructuring imminently. The score does not predict the exact date or time before filing, but is intended to show that we are considering it just a matter of time,” according to Sarah Foss, Global Head of Legal Affairs and Restructuring at Debtwire.
Five companies earned a score of 99 in the company's May report, and three of them are in the same industry.
“Three of the companies at the top of Debtwire's likelihood of trouble (LTD) rankings – CommScope Holdings (COMMUNICATION) Cumulus Media (CMLS) and EchoStar Group (SAT) – are in the communications, media and entertainment sector, which has seen an increase in restructuring activity over the last year and a half,” Foss shared.
Debtwire research shows that 19 companies in the media and telecommunications sector have filed for bankruptcy protection in US courts in 2023, while another five have filed for bankruptcy so far this year.
“The LTD Score provides an accurate perspective on the likelihood of stress, distress or restructuring for corporate issuers,” Debtwire added.
A look at the impacted companies
Perhaps the best-known brand on the list, Cumulus Media operates radio stations and syndicated radio content.
“Cumulus Media is an audio media company that delivers premium content to more than 250 million people every month, wherever and whenever they want it. Cumulus Media engages listeners with high-quality local programming through 401 owned radio stations and operated in 85 markets,” the company shared on its website.
It also offers syndicated programming to more than 9,800 affiliate stations through Westwood One, the largest audio network in the United States, and Cumulus owns a large podcast network.
It makes much of its revenue from advertising, which has been weak lately. The stock closed on May 2 at $2.75, up from $15.67 in May 2022 and down 48.3% this year.
EchoStar offers satellite programming and now owns the Dish Network satellite television brand as well as the Hughesnet satellite Internet service. The company also operates Boost Mobile phone service.
Shares have fallen from nearly $50 in 2017 to $17.44 as of May 3.
CommScope Holding, the least-known brand on this list, works in the background, so it's not a company most people know about. Even her own description of herself doesn't make it entirely clear what she does.
More bankruptcies:
- Another popular gin and vodka company Chapter 11 bankruptcy
- National retail chain closes all stores under Chapter 11 bankruptcy
- Historic supermarket chain files for Chapter 11 bankruptcy
“At CommScope, we push the boundaries of communications technology to create the world's most advanced networks. We design, manufacture, install and support the hardware infrastructure and software intelligence that enable our digital society to interact and thrive. Working with customers, we advance broadband, enterprise and wireless to drive progress and create lasting connections,” he posted on his website.
The business reported a big loss in 2023 as sales fell 23.1%. Shares have fallen from $42 in 2017 to 99 cents as of May 3.
