Bankruptcies Rise as Credit Runs Out for Firms `That Should Have Failed'

[Purveyor]

April 15 (Bloomberg) -- U.S. corporate bankruptcies are accelerating as the economic slowdown compounds the end of easy credit.

The filing by Frontier Airlines Holdings Inc. April 11 followed those of three other airlines and companies in restaurants and retailing this year. Increased levels of distressed corporate debt signal that failures will accelerate, says Lynn LoPucki, a professor at the University of California, Los Angeles law school who studies bankruptcies.

The amount of distressed corporate bonds jumped to $206 billion April 11 from $4.4 billion in March 2007, according to a Merrill Lynch & Co. index of bonds yielding at least 10 percentage points more than Treasuries. The share of leveraged loans considered distressed was 16 percent at the end of March, the highest since 1997, says Standard & Poor's, based on loans trading below 80 percent of their face value.

``Money was so easy, companies that should have failed were kept alive,'' said Rick Cieri, a bankruptcy lawyer at Kirkland & Ellis in New York. He said bankruptcies will include businesses ``with severe operational problems'' and too much debt. ``Companies may well be sicker when they enter Chapter 11.''

A company bankruptcy isn't just a sign of a weakening economy, LoPucki says. There is an economic effect

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http://www.bloomberg.com/apps/news?pid=20601109&sid=aaTdhmzxnz1k&refer=exclusive

[crazymans economics]

1. The Fat Cats get richer...

and the investors and loan holders continue falling farther into the hole.