With 2023’s Biggest Bankruptcy Filings, Crowdsourcing Provides a Predictive Edge

CreditRiskMonitor’s year-to-date global bankruptcy tally marked its highest level since 2020, noteworthy in being the start of the global COVID-19 pandemic. To wit, total bankruptcy filings increased by 86% year-over-year and are trending significantly above 2022 and 2021 levels. High-risk companies face debt servicing challenges due to heavy debt burdens, higher interest rates, and declining profit margins. Among the largest nonfinancial corporate bankruptcy filings, the CreditRiskMonitor FRISK® score has provided more timeliness and precision with our proprietary crowdsourcing enhancement. Crowdsourcing leverages the research patterns of our collective risk professional user base to improve the FRISK® score’s predictive accuracy and risk categorization.

CreditRiskMonitor is a B2B financial risk analysis platform designed for credit, supply chain, and other risk managers. Our service empowers clients with industry-leading, proprietary bankruptcy models including our 96%-accurate FRISK® score for public companies and 80+%-accurate PAYCE® score for private companies, and the underlying data required for efficient, effective financial risk decision-making. Thousands of corporations worldwide – including nearly 40% of the Fortune 1000 – rely on our expertise to help them stay ahead of financial risk quickly, accurately, and cost-effectively.

Top Bankruptcy Filings

Beyond the overall increase in 2023 bankruptcy filings, the trend accelerated in Q2 2023 by 23% relative to Q1. Subscribers can continuously monitor public company financial risk through the daily updated FRISK® score. According to CreditRiskMonitor research, nearly 50% of all global buy and sale transactions involve public companies due to the prevalence of subsidiary and parent hierarchies. While public companies may be limited in number, they often represent a substantial portion of risk exposure. In 2023, both bank failures and non-financial corporate bankruptcies have been devastating. Yet among the largest non-financial corporate bankruptcy cases, each had a FRISK® score of "1" for at least three months and, in some cases, up to a year before filing.

CompanyIndustryFRISK® Score Before BankruptcyLiabilities (USD)
Avaya, Inc.Communication Services1$5,133,000
Bed Bath & Beyond Inc.Retail (Home Improvement)1$5,025,225
Diebold Nixdorf, Inc.Computer Peripherals1$4,564,300
Party City Holdco, Inc.Retail (Specialty)1$3,022,960
Cyxtera Technologies, Inc.Computer Services1$2,705,300
Loyalty Ventures, Inc.Business Services1$1,980,850
Venator Materials PLCChemical Manufacturing1$1,701,000
QualTek Services, Inc.Construction Services1$789,647
Lannett Company, Inc.Biotechnology & Drugs1$746,883
iMedia Brands, Inc.Retail (Catalog & Mail Order)1$426,705
The FRISK® score serves as a first line of defense for risk professionals and typically provides 12 months of advanced warning before a company files for bankruptcy. With such notice, clients can plan and implement risk mitigation strategies to minimize the counterparty bankruptcy impact.

The FRISK® score measures public company bankruptcy risk on a scale from "1" (highest risk)-to-"10" (lowest risk). The bottom half of the scale, ranging from "1" to "5," is referred to as the FRISK® "red zone," signifying a heightened risk of bankruptcy. A FRISK® score of "1" is the most critical classification, indicating up to a potential 50% probability of bankruptcy within the next 12 months, as shown in the FRISK® chart below.

FRISK® Score

Probability of Bankruptcy Within 12 Months

The 96%-accurate FRISK® score leverages four high-quality data components, including:

  1. Crowdsourcing, or aggregated risk sentiment of CreditRiskMonitor subscribers inferred from their collective actions on the platform
  2. Stock market data, including volatility and market capitalization trends
  3. Financial statements, factoring in ratios similar to, but in excess of the Altman Z’’-Score, and
  4. Credit agency ratings from Moody’s, Fitch, and DBRS Morningstar

AI-Driven Crowdsourcing

While all FRISK® score components are important, crowdsourcing provides risk professionals with a distinct information advantage in predicting bankruptcy.

According to the Crowdsourcing Enhancement white paper, author and CreditRiskMonitor Sr. Vice President of Data Science, Dr. Camilo Gomez, explains the efficacy of the data:

Our research shows that the usage pattern that a typical subscriber exhibits when evaluating a business on our website is related to his or her level of concern for that business. By analyzing this data across many subscribers, we find that the aggregate usage pattern provides additional information about the failure risk of that business. Including this unique, crowdsourced signal in the FRISK® score significantly enhances the performance of the score. Overall accuracy is back-tested at 96%, with important increases in scoring accuracy for the most risky companies.

CreditRiskMonitor grants access to the largest virtual credit group through our structured website, allowing anonymous, real-time collection of subscribers' research patterns. These aggregated patterns were extensively back-tested on over 10 years of usage data and have demonstrated their ability to predict bankruptcy effectively. Crowdsourcing enhances the capture rate, timeliness, and precision of bankruptcy predictions. Notably, two-thirds of all public company bankruptcies are classified as FRISK® "1" or "2" for at least three months before filing. In 2023, crowdsourcing helped forewarn our clients of several impending failures.

  • Bed Bath & Beyond Inc. experienced one of the most significant bankruptcies in the first half of 2023. During 2022 and 2023, the company's FRISK® score consistently remained in the red zone, with negative sentiment stemming from crowdsourcing. Trade vendors, crucial for inventory financing, grew concerned about the company's deteriorating financial health and its ability to meet financial obligations. Surprisingly, the Z’’-score inaccurately indicated strong financial health until the final quarter before bankruptcy. For more details, read about the crowdsourcing impact on Bed Bath & Beyond's FRISK® score and our postmortem Bankruptcy Case Study.
  • Diebold Nixdorf, Inc., an industry leader in self-service transaction systems and point-of-sale terminals, provided upbeat revenue guidance in February 2022. However, the FRISK® score downgraded from “2” to “1” due to crowdsourcing patterns. As business challenges mounted, CreditRiskMonitor published a High Risk Report followed by a Bankruptcy Case Study after the filing announcement.
  • Cyxtera Technologies, Inc., a data center operator, went public via a SPAC merger. In 2022, the company aimed to join the Russell 2000 Index and convert into a real estate investment trust. Nonetheless, negative sentiment from crowdsourcing emerged during 2022 and 2023 as red flags surfaced. Looking at a variety of risk factors that subscribers observed, CreditRiskMonitor released a detailed Bankruptcy Case Study on Cyxtera Technologies.

Bottom Line

Crowdsourcing being integrated into the FRISK® score provides risk professionals that subscribe to our services with a distinct advantage over non-subscribers. Real-time crowdsourcing patterns offer several benefits, such as higher cumulative bankruptcy prediction capture rates, more precise risk score classifications (specifically in the red zone), and timelier warnings (FRISK® score downgrades take effect sooner). With the increase in public company bankruptcy filings, our expectation is that crowdsourcing will continue supporting risk professionals in monitoring portfolio risk.

Contact us to explore how clients leverage our AI-driven solutions, like the FRISK® score and crowdsourcing, to successfully predict bankruptcy and manage risk exposure.