The Incredible Shrinking Bankruptcy Case
Southeastern Grocers, LLC, which filed for bankruptcy in late March with a prepackaged plan of reorganization, emerged from Chapter 11 in 65 days with a plan that won support from key creditor groups, having equitized more than $500 million of debt, or nearly 40% of pre-petition debt, as well as securing new exit financing, making select store closings and some M&A transactions. It’s an impressive accomplishment in two months’ time, even by today’s “pedal to the metal” pace, and a feat that would have been hard to imagine a decade ago.
Most restructuring professionals recognize that the average duration of Chapter 11 cases has become shorter in recent years, but the contraction in average case length has been particularly striking since 2015. The primary driver of shorter case lengths is the prevalence of prepackaged, prearranged or prenegotiated filings (collectively referred to herein as “Pre-filings”) in recent years. We summarized more than 300 Chapter 11 cases that emerged from bankruptcy in 2011-2017 via a confirmed plan of reorganization, of which nearly 66% of cases that emerged in 2016-2017 were Pre-filings compared to approximately 40% over the previous five years. Prepackaged cases consistently accounted for 45% of all Pre-filings — 25 of 55 Pre-filings in the last two years and 65 of 142 Pre-filings since 2011.
Consequently, the average duration of Chapter 11 reorganizations fell by nearly one-half in 2016-2017 compared to 2011-2015, to 235 days from 435 days.