2018 Private Company Bankruptcy Review: PAYCE® Keeps You Safe

PAYCE® Score

CreditRiskMonitor as a company prides itself on using a variety of high-quality data sources and its proprietary methods for assessing bankruptcy risk. Below, we cover 10 private company bankruptcies that transpired in 2018, each of which were predicted by the PAYCE® score. The PAYCE® score is a proprietary model that uses artificial intelligence to predict private company bankruptcy with 70% accuracy. 

CreditRiskMonitor is a leading web-based financial risk analysis and news service designed for credit, supply chain and financial professionals. Subscribers include thousands of risk professionals all over the globe, including employees from more than 35% of the Fortune 1000. 

Excellence with Artificial Intelligence

The PAYCE® score did an excellent job in helping subscribers monitor private company danger in their portfolios during 2018. The model uses deep neural network technology, a type of artificial intelligence, to effectively predict risk. The critical data inputs are trade payment behavior and U.S. federal tax liens. 

The private company PAYCE® score model, like CreditRiskMonitor's public-company focused and 96% accurate FRISK® score, assesses bankruptcy risk looking out 12 months into the future. The chart below shows the probability of bankruptcy at each PAYCE® score level, going from  “1” (weakest) to “10” (healthiest):

When a business enters into the PAYCE® score “red zone,” which is the bottom half of the scale from “5” to “1,” it indicates that the business is experiencing elevated financial stress and has elevated vulnerability to bankruptcy. Each step lower into the bottom tiers represents a meaningful increase in risk. We recommend that subscribers be particularly alert to businesses that maintain a PAYCE® score of “3,” “2,” or “1,” which indicates acute financial stress and a probability of bankruptcy that is 300% over average risk. 

Some Examples

Below are 10 private companies that filed for bankruptcy in 2018. Each business maintained a PAYCE® score in the red zone for approximately 12 months leading up to the bankruptcy.

CompanyPAYCE® ScoreIndustryBankruptcy Date
Supply Pro, Inc.2TextilesDec. 19, 2018
Cafe Enterprises, Inc.1ResturantsNov. 15, 2018
Zacky & Sons Poultry, LLC1Food ProcessingNov. 13, 2018
Promise Healthcare Group, LLC2Healthcare FacilitiesNov. 4, 2018
NSC Wholesale Holdings, LLC1RetailOct. 24, 2018
National Stores, Inc.2RetailAug. 6, 2018
Gump's Holdings, LLC1RetailAug. 3, 2018
Puglia Engineering, Inc.2Water TransportationApr. 14, 2018
A.J. Bart, Inc.1Printing ServicesApr. 3, 2018
Traco Production Services, Inc.3Oil & Gas OperationsMar. 16, 2018

 

One of the more high profile names on the list was National Stores, Inc., a family-owned outfit which operated more than 300 apparel retail locations under a variety of brand names. The business had several hundred million in liabilities and many creditors. Due to the bankruptcy process, the Los Angeles-based company had to close all of its stores, which had expanded into 22 different U.S. states and Puerto Rico. As shown below, the PAYCE® score provided a useful leading signal of financial stress, with the score steadily trending lower into the red zone in advance of the August 2018 bankruptcy filing:

National Stores, Inc. PAYCE® Score
National Stores, Inc.'s PAYCE® score progression.

Promise Healthcare Group, LLC is the parent of 45 subsidiary businesses that operate hospitals and nursing facilities. Medicare disbursement rates had fallen, and in combination with excessive debt, the business was forced to file for bankruptcy in November 2018. Not only the parent company, but also many of the subsidiaries had PAYCE® scores trending in the red zone. Professionals should monitor all entities with a red zone score inside a parent-subsidiary relationship, given that it can often provide a telltale warning: one bankruptcy can financially impact the other businesses. For example, Promise Hospital of Phoenix exhibited a bottom-rung PAYCE® score of “1” for many months leading up to the filing:

Promise Healthcare Group, LLC PAYCE® score
Promise Healthcare Group, LLC's PAYCE® score progression.

Zacky & Sons Poultry, LLC, a food production company, previously filed for bankruptcy in 2012 due to high feed costs. On occasion, some businesses file for bankruptcy restructuring more than once. In November 2018, the company filed for bankruptcy again and shuttered operations. While this business was small, the PAYCE® score successfully identified the trouble. In the graph below, the monthly calibrated PAYCE® score steadily trended lower into the red zone, indicating mounting financial stress:

Zacky & Sons Poultry, LLC PAYCE® score
Zacky & Sons Poultry, LLC's PAYCE® score progression.

Bottom Line

Even without financial statements, professionals can make use of sophisticated models to identify bankruptcy risk for private companies. The PAYCE® score’s use of deep neural network technology to detect private company bankruptcy allows it to achieve an impressive 70% rate of predictive accuracy. CreditRiskMonitor subscribers stay informed, make better decisions, and therefore protect themselves against consequential problems such as slow payment, supply chain disruption and, most importantly, financial loss.

About CreditRiskMonitor

CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of more than 56,000 global public companies.

At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $140 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.