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BUOY IN A RED INK SEA

A staggering rise in Florida business bankruptcies keeps a lawyer hopping.

Other lawyers at his firm - the ones who handle transactions - are seeing fewer clients these days. But as part of Tampa-based Akerman Senterfitt's cadre of business bankruptcy attorneys, Ed Whitson is swamped.

The workload, he says, is "easily" double what it was even a year ago. Which is saying something considering how busy last year was.

Between 2006 and 2008, the number of business bankruptcy filings in Florida rose 646 percent, more than twice the national average. So far in 2009, business bankruptcy filings statewide are already up almost 70 percent from 2008 levels.

Whitson thinks the bankruptcy groundswell has yet to peak. Not that the economy will necessarily get worse. But until more lenders are willing to put their capital at risk, it will be a tough climate for many small businesses to survive and grow, he says.

A Clearwater native, Whitson spent five years working on bankruptcy cases in the mid-Atlantic region until coming back to the Tampa Bay area 12 years ago. He recently talked about the business of business bankruptcies with the Times:

Why has the number of business bankruptcies in Florida risen so much faster than the national average?

Because a lot of what drives the Florida economy is real estate ...and real estate was the hardest thing hit when the bubble essentially burst. The trickle-down effect of that has (impacted) all the businesses. Our economy is so tied up in it. I'd say we're 60 percent real estate (bankruptcies).

If you look at Florida as a percentage of the national bankruptcies ... historically in this decade we've been about 4 percent. ... That number has increased to 7.2 percent for 2007 and over 9 percent for 2008, and it's on the same track for 2009.

Beyond real estate cases, what else are you seeing?

There were a lot of cases that were essentially frauds like Ponzi schemes. ... These companies had very fragile financial models that collapsed when the economy turned, and they wound up with huge liabilities. These cases are being filed ... more to get them relief from personal obligations than any true reorganization.

Overall, are most of your cases Chapter 11 reorganizations or are you seeing a greater frequency of Chapter 7 liquidations?

It goes back to my point about Ponzi schemes. Those cases looking for third-party relief start out as 11s but truly they're 7s.

The old model, the debtor-in-financing market where companies were trying to do business with bankruptcy lending, has really dried up. That was designed to encourage lenders to lend money to distressed debtors to reorganize and rehabilitate. Now that money is gone.

What you're seeing now is equity investors who are essentially vulturing those assets. Buying those assets out of bankruptcy (liquidation) is very attractive because you can buy them free of claims.

Statistics are somewhat misleading. There are a lot of cases that are filed as 11s and converted to 7s that really don't show up in the stats.

Where are we in the bankruptcy cycle?

A lot of people would give you a different answer on that. A lot would say we've hit bottom and are coming out of it. A lot would say we haven't even seen the bottom yet, that the stimulus package has interrupted the cycle, but there's more bad news to come.

And where do you stand?

I don't see any more liquidity coming in from the banks. That whole thought that by pumping money into the system and giving it to banks to lend again, that you'd revitalize the liquidity - I don't see that happening. I see more equity firms coming in and buying up distressed assets, but you're still looking at the distressed part of the cycle.

When will it turn around?

I think it will be flat for a while. ... (Property) sales are up because people are buying distressed assets. It's vulturing. Until you start seeing leveraged deals come back into the market, until capital is being put at risk again, that's when the commercial side of the market (would be) showing hopes of recovery. ... I think it's at least three years out, if I had to put a number on it.

Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242.

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