Corporate Financial Distress, Restructuring, and Bankruptcy, 4th Edition
by Edward I. Altman, Edith Hotchkiss, Wei Wang
CHAPTER 1Corporate Financial Distress: Introduction and Statistical Background
Corporate financial distress, and the legal processes of corporate bankruptcy reorganization (Chapter 11 of the Bankruptcy Code) and liquidation (Chapter 7 of the Bankruptcy Code), has become a familiar economic reality to many U.S. corporations. The business failure phenomenon received some exposure during the 1970s, more during the recession years of 1980–1982 and 1989–1991, heightened attention during the explosion of defaults and large firm bankruptcies in the 2001–2003 post‐dotcom period, and unprecedented interest in the 2008–2009 financial and economic crisis period. Between 1989 and 1991, 34 corporations with liabilities greater than $1 billion filed for protection under Chapter 11 of the Bankruptcy Code; in the three‐year period from 2001 to 2003, 102 of these “billion‐dollar‐babies” with liabilities totaling $580 billion filed for bankruptcy protection; and from 2008 to 2009, 74 such companies filed for bankruptcy with an unprecedented amount of liabilities totaling over $1.2 trillion.
The line‐up of major corporate bankruptcies was capped by the mammoth filings of Lehman Brothers ($613 billion in liabilities), General Motors ($173 billion in liabilities), CIT Group ($65 billion in liabilities), and Chrysler ($55 billion in liabilities) during the 2008–2009 financial crisis. In fact, the total amount of liabilities of these four mega cases accounted for 75% of the liabilities of all billion‐dollar ...