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Few Sectors Immune to Bankruptcy

Few Sectors Immune to Bankruptcy

source for article: Reuters, July 31  by Emily Chasan

INTERVIEW-Weil Gotshal sees few sectors immune to bankruptcy

* Breadth of bankruptcy filings surprising

* Sharp uptick in distressed companies seen since June

* Years before troubles are resolved. No end in sight

NEW YORK, July 31 (Reuters) – The combination of a weak economy and tighter credit is roping more sectors than usual into bankruptcy, a top U.S. bankruptcy attorney says.

As large, well-known companies such as restaurant group Bennigan’s, energy trader SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research) and department store Mervyn’s have filed for bankruptcy protection in the last few weeks, Marcia Goldstein, chairwoman of the Business, Finance and Restructuring group at New York law firm Weil, Gotshal & Manges, says the dozens of industries now in distress are taking even bankruptcy professionals by surprise.

“The impact of the credit crunch is perhaps more widespread than had initially been expected,” Goldstein said. “It’s almost a surprise to us how diverse our client base is at this time.”

In the last bankruptcy wave, Weil Gotshal handled Enron and Worldcom, the two largest bankruptcy cases in U.S. history. And since June, the firm has seen a sharp uptick in companies in distress, Goldstein said in an interview with Reuters late on Wednesday.

Weil Gotshal has filed more Chapter 11 proceedings since June than any other U.S. law firm, court documents show.

Goldstein said she was surprised her firm’s biggest bankruptcy filing so far this year came the energy sector, which had been seemingly protected by the high price of oil.

“We are seeing some of the more obvious industry sectors like retail and real estate, but also other industries,” Goldstein said. “Energy, we did not expect.”

Weil Gotshal is representing SemGroup, the 14th largest privately-held U.S. company, with debt of $3.1 billion, which filed for bankruptcy protection this month after a loss on oil futures and derivatives positions.

Whereas in previous bankruptcy waves there were often one or two sectors that led bankruptcies, such as telecommunications or airlines, this year it is not as clear.

With rising food and energy costs, declines in consumer spending and housing values, and little financing available, now dozens of industries are in trouble, Goldstein noted.

Through July 17, the manufacturing, telecoms and oil and gas sectors have actually seen the most bankruptcy filings by companies with publicly-traded debt or equity, according to bankruptcy filing tracker

In the last two months, Goldstein’s department of about 100 bankruptcy lawyers, filed four cases with aggregate debt topping $6.1 billion.

In 2008, overall, the firm said it has been debtor’s counsel on eight cases, with aggregate debt over $7.1 billion, including clothing retailer Steve & Barry’s, gadget seller Sharper Image Corp SHRPQ.PK and California land developer LandSource Inc.

Goldstein believes it could be years before the troubles leading companies to file for bankruptcy are worked through the system because financing was so readily available in recent years.

“The leverage available was extraordinary and I do think that we will see the impact of that over a period of time,” Goldstein said. “I think that the momentum in terms of bankruptcy filings will continue in the foreseeable future. It is hard to call a high tide right now. Maybe it is coming.” (Editing by Andre Grenon)