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NEW YORK -- U.S. public companies have shattered bankruptcy records for a second straight year as accounting fraud and the last decade's debt spree brought down corporate giants, and experts are bracing for more such woes.
All told, 186 public companies with a staggering $368 billion in assets filed for bankruptcy in 2002, according to tracking service BankruptcyData.com. That is the largest asset total ever, sweeping past last year's record $259 billion.
The wreckage included five of the 10 largest bankruptcies ever, led by phone company WorldCom Inc., with $104 billion in assets. Filings by Conseco Inc., Global Crossing Ltd., Adelphia Communications Corp. and UAL Corp. also were among the top 10. Accounting scandals figured in the failure of all of those but UAL, according to Reuters.
In the convenience store and petroleum marketing industry, Dairy Mart Convenience Stores Inc., Swifty Serve Corp. and Clark Retail Enterprises Inc. all filed for bankruptcy. As a result of mounting debt, Swifty Serve was forced to liquidate its assets earlier this month. Dairy Mart was acquired by Alimentation Couche-Tard in August for $79.5 million.
Bankruptcy experts are bracing for a new crop of failures by companies that depended on companies that went bust. "I don't think we're going to see any dip in bankruptcy filings," said Alan Feld, a bankruptcy attorney with Manatt, Phelps & Phillips in Los Angeles. "I think it's going to get worse before it gets better."
The power sector and retailers, hurting from too much debt and competition, could run into trouble next.
"One area of the economy really suffering is the franchise business, both the restaurant and retail gasoline side," said Feld, who specializes in franchise bankruptcies. AmeriKing Inc., one of the largest Burger King franchises with more than 350 stores, filed for bankruptcy this month, hurt by industry pressures including a price war with McDonald's Corp.
Defaults by convenience stores and gas stations have been on the rise as supermarkets and other competitors eat into their fuel and tobacco sales.
"While there may only be a handful of extremely large companies that are household names filing for Chapter 11, there's a constant volume of smaller and medium-sized companies, often with assets well in excess of $100 million, and filings of that size will very likely continue at the same pace," Feld said.
Reasons for the bankruptcy wave are no secret. After a dizzying run-up in stocks in the late 1990s, investors and banks showered companies with cash, betting on growth that never materialized. Debt-laden companies hit a cash crunch when the economy slowed in 2001 and banks tightened lending standards.
Accounting fraud at Enron Corp. and its bankruptcy last year prompted regulators to put more balance sheets under the microscope, paving the way for some of this year's failures. WorldCom buckled after disclosure of a $3.9 billion accounting fiasco, which has now ballooned to $9 billion. Experts say it is not surprising to see mammoth bankruptcies and deceptive accounting go hand in hand, the report said.
"To have a really big bankruptcy, you have to both have a company take on a huge amount of debt and either be badly run or fraudulently run," said Andrew Hodge, U.S. economist for forecasting firm Global Insight. "There has to be something sufficiently attractive about the company that creditors foolishly or mistakenly extend huge amounts of credit."
ABOVE: Dairy Mart Convenience Stores Inc. was one of three major convenience store chains to file for bankruptcy in 2002. Analysts say other c-store chains could suffer a similar fate in 2003.