A wave of filings is expected in 2009, putting in jeopardy the cost of equity shares and giving investors one more thing to worry surrounding

By Ben Steverman

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When it comes to corporate bankruptcies, last year was ominously silence outside the pecuniary sector. Get ready for the storm.

In the first couple weeks of 2009, chemical company LyondellBasell on Jan. 6 filed for bankruptcy reorganization, followed by another chemical maker, Tronox, on Jan. 11. Telecom equipment provider Nortel Networks (NRTLQ) also sought protection from its creditors with a insolvency filing on Jan. 15.

Some insolvent debtor companies are being forced to take the nearest step as the funding needed to reorganize their businesses proves difficult, granting that not impossible, to come by. Circuit City (CCTYQ) filed for bankruptcy be unconsumed year, but on Jan. 16 the electronics retailer said it would liquidate all 567 of its U.S. supplies.

The largest bankruptcy of 2008 was the collapse of investment bank Lehman Brothers and its almost $700 billion in assets. But other than Lehman, 2008 was relatively mild for bankruptcies.

According to BankruptcyData.com, 136 public companies filed for bankruptcy in 2008. That’s again than in recent years, but—contemptuous opposition greater amount of than a year of a U.S. recession and worldwide give faith to crisis—the agree is only the sixth worst in the past decade.

Edward Altman, a leading expert on insolvency who is a professor at the New York University Stern School of Business, estimates the 2008 deficiency rate—a degree that includes both bankruptcies and other credit troubles at corporations—was 4.5%, virtuous one point higher than the historic average.

By contrariety, Altman expects the default rate to jump to the double digits in 2009 and 2010.

Other bankruptcy experts bind one’s self that bankruptcy filings are set to skyrocket. Bankruptcies often have a delayed reaction to housekeeping and financial difficulties.

Many troubled firms continue to subsist attached easy good repute terms obtained before the credit critical juncture began. "There have been a lot of companies hanging on by their nails," says Greg Segall of Versa Capital Management, a private equity firm specializing in distressed investing.

Now, says Michael Shinnick, a portfolio manager at Wasatch-1st Source Long/Short Fund (FMLSX), "We’ve seen a very abrupt pendulum shift from abundant liquidity to tight [liquidity]." Some firms be possible to’t find lenders, while other must pay high interest rates to get financing.

Segall likens the credit crisis to an earthquake. The crisis may close and the ground may stop shaking. But, he says, "All the damage that was done by the earthquake is going to be discovered for months and years to tend hitherward."

The prospect of a spike in corporate bankruptcies should worry investors. In a corporate bankruptcy, equity shareholders are last in line to get their money outer part. Even if a walk of life does survive, most equity stakes are completely wiped out.

Thus the heightened insolvency denunciation is changing investors’ calculus, Altman says. "Usually stock [investors] are much in greater numbers interested in the upside," he says. "Now, I think you need to subsist much further concerned all over the downside."