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Falling oil prices sending many Texas hotels into bankruptcy

Many Texas residents may be aware that global oil prices have been falling the last couple of years. This may be great news for consumers across the country when it comes to lower gas and diesel prices, but many businesses in Texas are being hurt by these lower prices, including oil and gas exploration and extraction outfits to the hotels that accommodate out-of-town workers employed by these companies and affiliated businesses in large parts of the state.

A group of companies that owns eight hotels in Texas recently filed for Chapter 11 bankruptcy protection after their hotels were unable to reach refinancing deals with creditors and banks to help them with their mounting debt. The filing is the latest involving companies associated with the drop in oil prices.

A large portion of those hotels' revenue came directly from workers who stayed in these facilities as they worked on drilling and extraction operations for a wide variety of oil and gas companies across the state's southern half. Hotels all the way from Hobbs, New Mexico, eastward through Midland and all the way to Port Arthur on the state's eastern border along the Gulf of Mexico have been hit hard by the loss of steady business.

If the Chapter 11 filing is successful, the hotels would continue to operate because they still have positive cash flow positive. To help them, the hotels have requested that the federal bankruptcy court grant them the right to tap their lenders' cash collateral.

In the event of any Chapter 11 bankruptcy filing, businesses usually face challenges from creditors, government agencies and bankruptcy courts themselves. Businesses, like this one, that are facing financial turmoil need to understand their rights and obligations under Chapter 11. For many businesses Chapter 11 can provide a way to a financial fresh start.

Source: The Wall Street Journal, "Oil Woes Hit Texas Hotels," Jacqueline Palank, July 9, 2015

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