Bankruptcies were on the rise well before Sept. 11. Flocks of telecommunications and Internet start-ups, movie theater chains, retailers, chemical companies and textile and apparel manufacturers opted for Chapter 11 earlier this year. The largest movie theater chains, including Regal Cinemas Inc. and Loews Cineplex Entertainment Corp, were mired in red ink after new "multiplex" theaters led to an oversupply of screens.
Bethlehem Steel Corp joined LTV Corp and more than a dozen other steelmakers in bankruptcy court due to competition from low- priced imported steel.
In April, California's largest utility, Pacific Gas & Electric Co, became the third-largest Chapter 11 case ever behind Texaco Inc in 1987 and Financial Corp of America in 1988. The utility lost more than US$9 billion paying more for power than it could bill customers under the state's flawed deregulation scheme.
Lax lending standards and an overheated junk-bond market in the late 1990s allowed companies to borrow with ease.
"These days banks are terrified," Miller said. "As the value of collateral deteriorates, it becomes harder to get rescue loans."
Internet and telecommunications companies such as Net2000 comprise the largest group seeking bankruptcy help. Net2000, founded in 1993, went public on March 7, 2000, and traded as high as US$40. It last traded at 20 cents.
"The market simply overestimated how much the world needed telecom services," said Terry Savage, co-head of restructuring at Lazard Freres & Co.
Among the dozens that chose the sanctuary of Chapter 11 are At Home Corp, 360networks Inc, Covad Communications Group Inc, NorthPoint Communications Group Inc, PSINet Inc, Teligent Inc and WinStar Communications Inc.
Upstart phone companies may never repay almost 80 percent of their combined US$900 billion in debt, a failure exceeding the savings and loan industry collapse of a decade ago, former Global Crossing Ltd Chief Executive Leo Hindery Jr. recently said.
The claims by creditors of many bankrupt high-tech companies have become almost worthless. Viatel Inc, for instance, couldn't find a buyer at any price for a fiber-optic network it spent more than US$2 billion to build.
"I've never seen businesses of this magnitude being rendered non-viable," said Jeff Werbalowsky, co-head of restructuring at Houlihan Lokey Howard & Zukin. "There's been more money wiped out than I've ever seen in 20 years of restructuring work."
Companies with strong brand names or core cash-generating assets to rally around have a better shot of survival and becoming profitable, experts say.
"Technology start-ups with a single line of business, few hard assets or big investment in assets with little value are very difficult, if not impossible, to reorganize," said Al Koch, chief operating officer at turnaround consulting firm Jay Alix & Associates.
The increase in bankruptcies is likely to continue, said David Hamilton, director of default research at Moody's Investors Service, citing an accelerating junk-bond default rate.
The default rate on the high-yield bonds reached 9.6 percent last month, the highest since 13 percent in July 1991, he said. He predicted it may peak near 11 percent in the first quarter next year.
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