Bankruptcies in Colorado up 40 percent

Could hit 800 for year; credit crisis might spur more

By James Paton, Rocky Mountain News (Contact)

Published October 11, 2008 at 12:05 a.m.
Updated October 11, 2008 at 12:23 a.m.

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A home furnishings provider near Aspen, an excavation outfit in Pueblo and a printing company in Denver are among the scores of businesses that have sought bankruptcy protection recently.

Construction Junction, a "product of the housing boom" in upscale Aspen, sold furniture, appliances and building products, according to its Web site, but the Carbondale-based company on Tuesday followed Parker Excavating and L&M Pressworks into bankruptcy court.

Business bankruptcies in Colorado have climbed more than 40 percent this year from 2007 levels as the economy has softened and credit has tightened.

While Colorado has not seen as much weakness as other states, the economy has clearly downshifted. Now a credit crunch has squeezed businesses that borrow money to pay the bills as well as affecting consumers' ability to get home, car and other loans.

The increase in activity at Colorado's bankruptcy court in downtown Denver has been steady, but not dramatic, said Brad Bolton, the clerk of the court. At this rate, the number of cases should pass 800 this year.

The turmoil on Wall Street and the credit crunch certainly are affecting Colorado businesses and will drive some into bankruptcy, but those cases may not hit until early next year, said Greg Barrow, managing director of General Capital Partners in Denver.

"The filings you are seeing today are usually triggered by events that occurred prior to this credit meltdown," said Barrow, whose firm works for struggling companies with assets between $10 million and $50 million find new financing or investment. "The next wave might be attributed to the meltdown. There is not any lending happening. Companies aren't able to renew existing lines of credit or find replacement lines of credit."

Each business has its own story and set of challenges, and it's unclear how much banks' inability or unwillingness to lend has played a role in some cases.

For some, it's a factor.

Professional Trade Supply of Colorado, started in the early 1970s, buys tile and other flooring material from manufacturers and sells it to dealers. The company has faced a significant decline in demand as residential construction ebbed and then as the commercial sector began to weaken, said Peter Rincione, its president.

The company has credit lines with a bank and its vendors, and the company saw both of those lines reduced, further pinching the business, he said.

As long as the economy advanced at a relatively healthy pace, the company could stay afloat, he said, but being a "highly leveraged, low-margin business in a declining economy" led the company to declare Chapter 11.

Rincione said he opted for bankruptcy protection because he believes he has a sustainable business. Still, he said he's "not positive we're going to have a stable economy going forward."

Other Colorado businesses to declare bankruptcy recently include Academy Fence, based in Colorado Springs, and Swede Gulch Farm, a horse boarding and training facility in Evergreen. The owner of trendy Cherry Creek steakhouse Prime 121 filed for Chapter 11 earlier this year.

Many of the bankruptcies today involve real estate businesses or companies such as retailers, hotels and restaurants that are hurt by slower consumer spending, said Barrow of General Capital.

Total filings have risen sharply but really have just returned to typical levels. Bankruptcy filings soared in late 2005 before a new law took effect making it harder for people to erase debts. The caseload then dropped sharply in 2006 before picking up again.

Colorado recorded 96 business cases in September, Bolton said. That's the highest number since a record set in October 2005, just before the deadline. He counted 16 in the first eight days of October.

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