Source: Dreamstime
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As expected, the unprecedented crisis, provoked by the global COVID-19 pandemic, led to significant economic problems and bankrupted many businesses of all sizes and in all economic sectors.
Аccording to some estimates, the negative effects of the downturn have already outweighed those of the 2008 crisis. “I’m pretty confident we will see more bankruptcies this year than ever before,” recently commented for Fortune magazine James Hammond, CEO of New Generation Research – the data analytics company that runs Bankruptcy Data.
With a few exceptions, COVID-19 had a negative impact on all sectors of the global economy. However, tourism, transportation services, the hospitality industry, the entertainment and the retail sectors seem to have borne the brunt of the crisis.
According to the latest estimates of the International Monetary Fund (IMF), the worst is over and the global economy is in a better spot than it was in June. The financial risks, however, remain, especially if governments seize to support business too soon or fail to manage the pandemic. “My key message is this: the global economy is climbing back from the depths of this crisis,” said the IMF Managing Director Kristalina Georgieva, quoted by Reuters. “But this calamity is far from over. All countries are now facing what I would call “the long ascent” – a difficult climb that will be long, uneven, and uncertain. And prone to setbacks,” she added.
But despite the faint glimmer of hope, the crisis already took its toll and, along with the thousands of small and medium businesses, it also dragged down some of the big corporations. In this article, we present you a brief list of some of the most popular companies that went bankrupt as of October 2020. Most of them have already put their restructuring plans in motion and are set for a fresh start, but some are selling out their assets and their future is unclear.
Hertz
With a total asset worth of $25.8 billion, the bankruptcy of Hertz is the worst one caused by the coronavirus crisis… for now.
The world’s biggest car rental company filed a court request for protection from creditors in May 2020. Among the many reasons cited is the complete halt of the tourism industry and the sharp decline in the demand for rental cars. At present, Hertz is selling nearly 200,000 cars (out of a fleet of 500,000) to pay out its debts to the creditors.
It is worth noting that the 100-year-old company had financial problems well before COVID-19 hit the market. The virus did exacerbate these issues, however, and for now the future of Hertz remains uncertain.
Virgin Atlantic
The airline of the British billionaire Richard Branson and the U.S. airline Delta filed for bankruptcy protection from U.S. creditors at a New York court in early August and promised it will undergo restructuring. This happened after it failed to get financial aid from the British government, but managed to obtain a $1.6 billion rescue package from the U.S. hedge fund Davidson Kempner, the parent company Virgin Group, shareholders and other creditors.
It is expected that this package will keep the airline afloat for around 18 months, with the hopes that the COVID-19 situation would have subsided by then. However, despite the aid, the harsh economic circumstances forced Virgin Atlantic to close its hub at the London airport Gatwick and to lay off 3500 employees.
Virgin Australia
Virgin Atlantic’s troubles were preceded by the April bankruptcy of Virgin Australia – the second-largest airline in Australia, also partially owned by Virgin Group. Even before the coronavirus pandemic, Virgin Australia had outstanding debts totalling $3.2 billion and was operating at a loss for seven years.
This airline was also the first to request an emergency loan from the government and then proceeded to seek help from its owners. But since its largest shareholders – Singapore Airlines, Etihad Airways, Nanshan Group, HNA Group – were already receiving government aid, they could not save Virgin Australia. Eventually, in September the creditors agreed to sell the airline to the U.S. investor Bain Capital. In return, the company had to cut 3000 jobs and terminate the majority of its international routes.
JCPenney
The popular U.S. department store chain with a total asset worth of $8.6 billion filed for protection from creditors in May. Еstablished 118 years ago, the chain that once reigned supreme had started to experience financial troubles and dropping sales in the past few years, but it was the coronavirus that dealt the coup de grace.
In September, Brookfield Property Partners and Simon Property Group – two of the largest owners of shopping malls in the U.S. and, respectively, owners of JCPenney, agreed to buy the company out for $800 million in cash and to repay a portion of its debts, with the intention of leaving most of the 850 stores open and keeping the jobs of its 70,000 employees.
Brooks Brothers
Established in 1818 in Manhattan, Brooks Brothers is the oldest U.S. company for (mainly men’s) luxury clothing and accessories that has dressed 41 of the 45 U.S. presidents, as well as the Union officers during the Civil War.
In 2017, Brooks Brothers had 280 stores in the U.S. and abroad. Its inability to compete with popular casual wear brands, the online retail sales and the coronavirus pandemic, however, forced it to file for protection from creditors in July and to close down 50 of its 250 stores in the U.S.
In August, Brooks Brothers was bought out by the shopping mall owner Simon Property Group and Authentic Brands Group. The new owners’ aim is to keep at least 125 of the chain’s U.S. stores and some of its international stores open.
Pizza Express
The popular British pizza chain Pizza Express was also dealt a heavy blow by the pandemic – not only because of the strict lockdown but also because of the dwindling disposable income of the entire nation’s population.
In October, its voluntary restructuring scheme (a type of bankruptcy) was approved and it filed for protection from U.S. creditors, similarly to Virgin Atlantic. According to the scheme, Pizza Express will close down 73 of its 350 restaurants in the UK, but in doing so will keep 9000 jobs and lower its debt from £735 million to £319 million.
At the same time, the founder of the chain Luke Johnson harshly criticised the strict lockdown measures and warned that a second lockdown will lead to the loss of a total of 5 million jobs.
Other businesses affected by the pandemic
These are only a few of the larger and more popular companies that went bankrupt because of the pandemic. In reality, the number of companies that went under is much larger. Among them are oil companies, electricity suppliers, coffee shop chains, bakeries, clothing retailers, companies renting bouncy castles, gyms, church organisations, candy stores, fast food chains, addiction treatment clinics, cinema chains, amusement parks, etc.
Despite the faint optimism, these numbers will most likely keep climbing, since it is very likely that the global economy and our lifestyle will not revert to normal for a long time still.
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