In June I predicted 225 bankruptcies for 2008 (see Update and on Bankruptcies and Distress). As of today, there have been 120 bankruptcies thus far this year (data from Bankrupctydata.com). This translates into a pace of about 195 bankruptcies for 2008, up from a pace of about 180 in June. I fully expect the pace to quicken as the months go on, so if anything, 225 may turn out to be a bit of an underestimate, …but not by much.

As I mentioned in a previous post, 225 bankruptcies would fall far short of the 289 bankruptcies from 2000 and 383 in 2001. I do not think we will reach 289 this year (even if my prediction turns out to be optimistic). However, I would not be surprised to see 2009 challenge the 383 mark from 2001.

Below you can find a list of what I see as the “noteworthy” bankruptcies of 2008. New additions since June appear in RED (please note that this is not an exhaustive list):

• Aloha Airlines (airline)
• AMERICAN COLOR GRAPHICS (newspaper)
• ASCENDIA BRANDS (retail)
• ATA (airline)
• Bear Stearns (banking)****
• BLUEPOINT RE (insurance)
• Blue Water Holdings (auto)
• BOSCOV’S (retail)
• Buffets Holdings (restaurants)
• Education Resource Institute (insurance)
• Empire Land (real estate)
• Eos Airlines (airline)
• Fashion House Holdings (retail)
• Fortunoff (retail)
• Friedman’s Jewelers (retail)
• Fred Leighton Holdings (retail)
• FREMONT GENERAL (banking)
• Frontier Airlines (airline)
• GEMINI AIR CARGO (air delivery/freight)
• Goody’s (retail)
• GREEKTOWN HOLDINGS (casino)
• INDYMAC (banking)
• JHT HOLDINGS (trucking/transportation)
  
• LANDSOURCE (real estate)
• Legends Gaming (casino)
• Lillian Vernon (retail)
• Linens n’ Things (retail)
• Kimball Hill (real estate)
• Landsource Community Development (real estate)
• Matrix Development Corporation (real estate)
• MERVYN’S (retail)
• MORTGAGES LTD. (banking)
• PIERRE FOODS (food services)
  
• PRC LLC (business services consulting)
• Propext (textiles)
• Quebecor World (USA), Inc. (office services/printing)
• Red Envelope (retail)
• Sharper Image (retail)
• Silverjet Airlines (airline)
• Sirva (moving services)
• Skybus (airline)
• STA RESTAURANTS - BENNIGAN’S (restaurants)
• Steakhouse Partners (restaurants)
• STEVE AND BARRY’S (retail)
• SYNTAX-BRILLIAN - OLEVIA (electronics)
• Tropicana (casinos)
• WCI (real estate)
• WHITEHALL JEWELERS (jewelry)
  
• Wickes Furniture (retail)
• Vicorp (restaurants)
• Ziff Davis (media)

Most of these bankruptcies have occurred in industries that are close to the struggling consumer. That is no surprise. But again, I expect bankruptcies to become more broad-based as this recession continues to spillover to the broader economy.

My wife and I had dinner over the weekend with some close friends who were visiting from Washington DC. One of our friends just so happens to be Chief of Staff for a U.S. Congressman. He was interested in my views of the financial crisis, and the conversation quickly turned to the recent SEC-imposed ban of naked short-selling on a host of financial institutions (see SEC Restricts Shorting 19 Financial Stocks for background).

My friend and I agree on many issues. This was not one.

It is his view (and by extension, that of his boss) that short-sellers (UPDATE FOR CLARITY: He meant short-sellers in general, naked or otherwise) are to blame for much of the ills that have befallen U.S. banking stocks. He believes that by talking their books, hedge fund managers have effectively caused runs on banks. Moreover, he suggested that rumors passed from fund managers to CNBC, then reported on CNBC as fact (even if only as “alleged” fact), exacerbate the problem.

C’mon now, are you kidding me???

As much respect as I have for this friend, who is quite intelligent, I think he’s misguided on this issue. Blaming short-sellers for the failure of banks is as ludicrous as blaming Charles Schumer for the failure of IndyMac.

It is not the short-sellers that have caused the problems, but the banks themselves for lending irresponsibly thereby impairing their own balance sheets. Short-sellers are simply calling it as they see it, making logical deductions from the information at their disposal.

Now this does not mean that there are not instances of fraud, and I agree that fraud and attempts at outright manipulation should be prosecuted to the fullest extent of the law. However, to make a well-reasoned case for why certain banks are not healthy (even if consistent with your underlying trading position) is not fraud. Concerns about the health of banks not only should be raised - they deserve to be raised. The public ought to know what professionals truly believe about a company, for good and for bad. And for whatever it’s worth, the short-sellers often have it right (see Nasty, Brutish and Short).

Short-sellers provide a vital service to the functioning of our capital markets. Restricting their behavior is not only myopic, but also raises questions about the legality of those restrictions, and the “fairness” of the system (see Naked Fear for a nice summary of key issues).

And the point about how information relayed by CNBC can lead to a run - again, who’s joking whom? By the time information is disseminated by CNBC, it’s old news.

If you truly want to know about the health of a bank, there are two places to look - its balance sheet (if you’re so inclined to pore over such minutiae) and/or the credit default swap market (as bond traders are fairly keen at evaluating the health of corporations).

For what it’s worth, the credit default swap market has recently been sounding the alarm over Washington Mutual (see WaMu: Liquidity Options Running Low, Credit Default Swaps on WaMu, Uninsured Depositors at WaMu Begging for Trouble, or Death Spiral Financing at WaMu), among others.

To my knowledge, there has been no run on WaMu yet reported by CNBC. But if WaMu were to fail, I would not be surprised.

And that would have nothing to do with this post.

Several months ago I promised to keep tabs on notable bankruptcies of 2008 (see More Failure for Fodder). Well, we’re nearly half-way through the calendar year, so I thought I’d continue to make good on that promise.

Below you can find a list of what I see as the “noteworthy” bankruptcies of 2008 (please note that this is not an exhaustive list):

• Aloha Airlines (airline)
• ATA (airline)
• Bear Stearns (banking)****
• Blue Water Holdings (auto)
• Buffets Holdings (restaurants)
• Education Resource Institute (insurance)
• Empire Land (real estate)
• Eos Airlines (airline)
• Fashion House Holdings (retail)
• Fortunoff (retail)
• Friedman’s Jewelers (retail)
• Fred Leighton Holdings (retail)
• Frontier Airlines (airline)
• Goody’s (retail)
• Legends Gaming (casino)
• Lillian Vernon (retail)
• Linens n’ Things (retail)
• Kimball Hill (real estate)
• Landsource Community Development (real estate)
• Matrix Development Corporation (real estate)
• PRC LLC (business services consulting)
• Propext (textiles)
• Quebecor World (USA), Inc. (office services/printing)
• Red Envelope (retail)
• Sharper Image (retail)
• Silverjet Airlines (airline)
• Sirva (moving services)
• Skybus (airline)
• Steakhouse Partners (restaurants)
• Tropicana (casinos)
• Wickes Furniture (retail)
• Vicorp (restaurants)
• Ziff Davis (media)

One thing that is clear about these 33 high-profile bankruptcies is that they have occurred in industries that are close to the struggling consumer. That is no surprise. But from here, I would expect bankruptcies to become more broad-based as this recession spills over to the broader economy.

From the previous recession, there were 289 total bankruptcies in 2000 and 383 in 2001 according to Bankruptcydata.com, …far more than this year’s projected 180 (if current numbers persist). I fully expect us to exceed 180 by year’s end. I do not expect us to reach 289 this year. My current estimate for 2008 calls for about 225 bankruptcies. However, I would not be surprised to see 2009 challenge the 383 mark from 2001.

In addition to the bankruptcies of 2008, I came across some interesting statistics from the Bankruptcy Insider (at the deal.com). The Bankruptcy Insider documents 475 cases of corporate distress since Jan. 1, 2008 (compared with 753 cases of distress for all of 2007). Cases of distress can provide a forward-looking estimate of bankruptcy.

So this is the state of the 2008 bankruptcy scorecard so far. Unfortunately, there’s likely many more to come.

I don’t know how many of you saw yesterday’s article in the Times (see Retailing Chains Caught in a Wave of Bankruptcies). Although the story is not new, there were some interesting nuggets in the article. Michael Barbaro explains:

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.

“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”

This is consistent with what I’ve been saying for a long time now, that businesses are getting hit especially hard on both the supply side and demand side of the ledger at once. This makes for a very difficult environment.

But the retail story is just a warm up.

Moving forward, the real action will be in how these effects reverberate throughout our economy, and then spillover to the broader world economy. Outside of housing and financial firms (the epicenter of this crisis), the next obvious lurch downward, which we’ve already begun to see, is in durables (autos, appliances, etc.); retail; and travel. In essence the recession is now beginning to impact those businesses closest to the struggling consumer. From there, just follow the supply chain upstream to the manufacturers of intermediate goods and providers of intermediate services. And as it so happens, many of those providers of intermediate goods and services are foreign. 

And this is how a U.S. recession effectively turns into a worldwide recession.

In my opinion, the world is just too interconnected, and the U.S. such a large part of the world economy, for it not to happen.

Just one question: Have we hit the first intermission in this show yet?

Several more bankruptcies to report this week - Skybus, Frontier Airlines, and Linens n’ Things.

I’m a week behind on Skybus (a friend pointed that out to me); but in my defense, Skybus was a tiny operator that had been in business for less than one year (see Skybus Airlines Files for Bankruptcy). Although Frontier Airlines was considerably larger and more established than Skybus, their business models were similar - both low cost, short-haul operations. Now Frontier is similar to Skybus in another way - it too has gone the way of the Dodo (see Frontier Airlines Files for Bankruptcy Protection).

The most impressive bankruptcy of recent vintage (Bear Stearns aside) has to be Linens n’ Things. Should it file for bankruptcy tomorrow as expected (see Linens n’ Things Weighing Bankruptcy), it would represent the most consequential bankruptcy so far this year. Linens n’ Things is not only a household name, but it received a fair amount of notoriety when it became a portfolio company of the private equity firm Apollo Management (see Apollo Struggles to Keep Debt from Sinking Linens n’ Things).

So this makes the new running list of notable 2008 bankruptcies:

• Wickes Furniture (retail)
• Sharper Image (retail)
• Lillian Vernon (retail)
• Sirva (moving services)
• Blue Water Holdings (auto)
• Buffets Holdings (restaurants)
• Aloha Airlines (airline)
• Bear Stearns (banking)****
• The Education Resource Institute (insurance)
• ATA (airline)
• Skybus (airline)
• Frontier Airlines (airline)
• Linens n’ Things (retail)

This list is threatening to get long enough for me to create a separate graphic.

Separately, I have to say, I’ve been somewhat troubled by this recession so far, and the bankruptcies that have accompanied it. Although bankruptcies and recessions go hand in hand, I cannot remember the last time so many well-known names had disappeared so quickly. Sure, the post dotcom recession brought us many a flop. Data from Bankruptcydata.com reveal that there were 289 bankruptcies in 2000 and 383 in 2001, …far more on a SAAR than this year’s 53. But what’s different to me about this recession is that unlike the dotcom era, many of these businesses were viable at one time, certainly much more so than firms like Pets.com or Webvan, …remember them??

And in an additional piece of corroboratory information, I had a conversation with the CEO of a turnaround/restructuring company this weekend who confirmed my worst fears - that this year has been terrible thus far, and is threating to become downright awful. As I’ve discussed on this blog before, he seemed to agree that firms are getting hit pretty hard on both sides of the ledger - on the supply side by financial institutions that abruptly cutoff access to money and credit, and on the demand side by a seriously impaired consumer, whose purchases seem to be falling off a precipice. He told me that this recession feels worse than any he can recall in his 29 year history in the industry. Moreover, he mentioned that he hadn’t been this busy since at least 1992.

He obviously wasn’t complaining. Business for them is going gangbusters.

Although I wish him well as a friend, I hope things don’t go as well for him as he expects, or as I fear they might. Is that bad to say???

Since I updated my blog last week, there have been two more bankruptcies of note (see Updates on Bankruptcies and M&A Activity). Wow, that was fast! If bankruptcies continue at this pace, in a couple of weeks I’ll be unable to keep up with them.

But for now, to make good on my promise, I will continue to keep a running list of noteworthy 2008 bankruptcies. So we can add ATA (see ATA Files for Bankruptcy) and the Education Resources Institute (see Big US Student Loan Guarantor Files for Bankruptcy) to the list.

The new and (un)improved list:

• Wickes Furniture (furniture retail)
• Sharper Image (retail)
• Lillian Vernon (retail)
• Sirva (moving services)
• Blue Water Holdings (auto)
• Buffets Holdings (restaurants)
• Aloha Airlines (airline)
• Bear Stearns (banking)****
• The Education Resource Institute (insurance)
• ATA (airline)

I’ve gone ahead and included Bear Stearns in the tally. I decided that Bear qualifies because Bernanke acknowledged in his testimony that it was within 24 hours of formally declaring bankruptcy (see Bernanke…Defends Bear Bailout).

Please feel free to take issue with my inclusion of Bear Stearns, or to point out any additional noteworthy bankruptcies that I’ve missed.