May 13, 2009 / 5:47 PM / 10 years ago

Prepackaged bankruptcies hit 8-yr high in Q1-S&P

NEW YORK, May 13 (Reuters) - U.S. prepackaged bankruptcies hit an eight-year high in the first quarter of 2009 and the trend is likely to gain momentum as companies seek a speedy alternative to Chapter 11 filings, Standard & Poor’s said on Wednesday.

In the first three months of the year, six companies with bonds worth $16.5 billion filed prepackaged bankruptcies, reorganizations that are arranged with creditors in advance and implemented in bankruptcy court, S&P said in a report.

By comparison, there were just four prepackaged bankruptcies by companies with publicly-listed shares or bonds in all of 2008, affecting only $1 billion in debt, S&P said.

More prepacks are likely on the way, with the junk bond default rate expected to hit 14.3 percent by March 2010, the rating agency said.

“An enormous buildup of default supply may be in the pipeline, and it points to the need to effectively manage the consequences,” S&P said. In the first four months of the year, 74 U.S. borrowers defaulted on $218 billion in debt, and default volumes will likely remain high even after the economic slump bottoms, the agency said.

Globally, $541 billion of debt defaulted in the first quarter, S&P said.

Prepacks allow issuers to shorten their time in bankruptcy court and are less expensive and onerous than a typical Chapter 11 filing, S&P said.

A revamp of bankruptcy law in 2005 limited the period in which a debtor has an exclusive right to propose a reorganization plan, adding to the appeal of a quick restructuring, S&P said. (Reporting by Dena Aubin; Editing by Padraic Cassidy)

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