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Breaking Bankruptcy Ties

4 February 2010 No Comment

Since last year, most U.S. companies have been trying to gain maximum benefit from the bankruptcy emergency plans implemented by the U.S. economic channels and institutions in attempts to reform the U.S. economy.

This year showed a great shift in the recovery of companies from bankruptcy compared to last year. The first few weeks of this year brought a surge of U.S. companies breaking the ties of bankruptcy to emerge with lighter debt loads, a fresh business plan and new owners.

The improving U.S. economy, capital markets and a rise in prearranged bankruptcy plans have held the door open for companies to exit bankruptcy court, but turnaround experts warn that emergence is only the beginning.

Some 11 formerly publicly traded companies have come out of bankruptcy so far this year, compared with just four in the same period last year, according to bankruptcy statistics provider BankruptcyData.com.

In 2008, only one company emerged in the first six months of the year. Some firms, such as music and entertainment provider Muzak Holdings LLC MUZKH.UL, have been able to take advantage of more welcoming capital markets to fund their exit.

“The prepacks are pushing people out much more quickly,” said Ed Albert, a managing director at investment firm Macquarie Capital (USA) Inc. He added that the sheer volume of companies that filed for Chapter 11 bankruptcy over the past few years contributed to the new year’s rush.

Some 210 public companies filed for bankruptcy last year, up 52 percent from the year before and the largest number since the previous U.S. downturn in 2001, according to BankruptcyData.com

An improving economy has helped loosen capital markets, allowing companies to refinance debt or reach deals with new lenders. Indeed, the economy grew at a faster-than-expected 5.7 percent annual pace in the last quarter of 2009.

“You can’t save companies in a bad economy,” said Richard Mikels, a partner with law firm Mintz Levin. “But when the economy starts to get a little better, you have a real chance of saving these companies.”

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