- NEW YORK (Reuters)
- U.S. public companies have shattered bankruptcy records for a second
straight year as accounting fraud and the last decade's debt spree brought
down corporate giants, and experts are bracing for more such woes.
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- All told, 186 public companies with a staggering $368
billion in debt filed for bankruptcy in 2002, according to tracking service
BankruptcyData.com. That is the largest asset total ever, sweeping past
last year's record $259 billion.
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- The wreckage included five of the 10 largest bankruptcies
ever, led by phone company WorldCom Inc., with $104 billion in assets.
Filings by Conseco Inc., Global Crossing Ltd., Adelphia Communications
Corp. and UAL Corp. also were among the top 10. Accounting scandals figured
in the failure of all of those but UAL.
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- Bankruptcy experts are bracing for a new crop of failures
by companies that depended on companies that went bust.
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- "I don't think we're going to see any dip in bankruptcy
filings," said Alan Feld, a bankruptcy attorney with Manatt, Phelps
& Phillips in Los Angeles. "I think it's going to get worse before
it gets better."
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- BRACING FOR DOMINO EFFECT
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- The downfall of so many once-mighty companies has eroded
investor confidence around the globe, obliterated untold shareholder wealth
and led to billion-dollar write-downs by the largest U.S. banks. Financial
spasms will linger for some time, experts said.
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- "The biggest fallout is the difficulty caused to
companies that do business with large companies in Chapter 11, whether
vendors, suppliers, landlords or lenders," said Feld. "The larger
the Chapter 11 case, the larger the domino effect."
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- Reasons for the bankruptcy wave are no secret. After
a dizzying run-up in stocks in the late 1990s, investors and banks showered
companies with cash, betting on growth that never materialized. Debt-laden
companies hit a cash crunch when the economy slowed in 2001 and banks tightened
lending standards.
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- Accounting fraud at Enron Corp. and its bankruptcy last
year prompted regulators to put more balance sheets under the microscope,
paving the way for some of this year's failures. WorldCom buckled after
disclosure of a $3.9 billion accounting fiasco, which has now ballooned
to $9 billion. Experts say it is not surprising to see mammoth bankruptcies
and deceptive accounting go hand in hand.
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- "To have a really big bankruptcy, you have to both
have a company take on a huge amount of debt and either be badly run or
fraudulently run," said Andrew Hodge, U.S. economist for forecasting
firm Global Insight. "There has to be something sufficiently attractive
about the company that creditors foolishly or mistakenly extend huge amounts
of credit."
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- NEXT UP: POWER COMPANIES, RETAILERS
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- Telecommunications companies accounted for some of this
year's biggest bankruptcies. Companies such as Global Crossing built too
much capacity, betting on new technologies and markets that did not live
up to their promise.
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- The power sector and retailers, hurting from too much
debt and competition, could run into trouble next, experts say.
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- "One area of the economy really suffering is the
franchise business, both the restaurant and retail gasoline side,"
said Feld, the bankruptcy attorney, who specializes in franchise bankruptcies.
Economic weakness, excess debt and competition have hurt that sector, he
said.
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- AmeriKing Inc., one of the largest Burger King franchises
with more than 350 stores, filed for bankruptcy this month, hurt by industry
pressures including a price war with No. 1 fast-food chain McDonald's Corp.
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- Defaults by convenience stores and service stations also
have been on the rise as supermarkets and other competitors eat into their
fuel and tobacco sales.
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- "While there may only be a handful of extremely
large companies that are household names filing for Chapter 11, there's
a constant volume of smaller and medium-sized companies, often with assets
well in excess of $100 million, and filings of that size will very likely
continue at the same pace," Feld said.
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- Public scrutiny could curb the worst business excesses
and slow the mega-bankruptcies next year.
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- "People now know enough of what to look for, so
the truly felonious and toxic companies have been mostly discovered,"
said Global Insight's Hodge.
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