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.
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.
|Company||PAYCE® Score||Industry||Bankruptcy Date|
|Supply Pro, Inc.||2||Textiles||Dec. 19, 2018|
|Cafe Enterprises, Inc.||1||Resturants||Nov. 15, 2018|
|Zacky & Sons Poultry, LLC||1||Food Processing||Nov. 13, 2018|
|Promise Healthcare Group, LLC||2||Healthcare Facilities||Nov. 4, 2018|
|NSC Wholesale Holdings, LLC||1||Retail||Oct. 24, 2018|
|National Stores, Inc.||2||Retail||Aug. 6, 2018|
|Gump's Holdings, LLC||1||Retail||Aug. 3, 2018|
|Puglia Engineering, Inc.||2||Water Transportation||Apr. 14, 2018|
|A.J. Bart, Inc.||1||Printing Services||Apr. 3, 2018|
|Traco Production Services, Inc.||3||Oil & Gas Operations||Mar. 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:
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:
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:
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.