At least 686 U.S. companies filed for bankruptcy last year
Debt restructuring also increases… Twice as high as bankruptcy ↑
The Financial Times (FT) reported on the 7th (local time) that the number of U.S. corporate bankruptcies has reached its highest level since the 2008 financial crisis due to the effects of high interest rates and weak consumer demand.
At least 686 U.S. companies filed for bankruptcy last year, according to data from S&P Global Market Intelligence. This is an increase of about 8% compared to 2023 and the highest figure since 828 companies filed for bankruptcy in 2010.
According to Fitch Ratings, out-of-court measures (such as debt restructuring) to prevent bankruptcy also increased last year and were about twice as many as bankruptcies. As a result, the recovery rate for preferred creditors for bond issuers with total debt of at least $100 million was the lowest since 2016.
The FT introduced the collapse of party supplies retailer ‘Party City’ as a typical example of a company going bankrupt last year. After escaping from bankruptcy proceedings under Article 11 (Chapter 11) of the Bankruptcy Act in October 2023, Party City filed its second bankruptcy application in as many years at the end of December last year. Party City said it would close 700 stores across the country, saying it was “in a difficult situation due to costs and inflationary pressures on consumer spending.”
As the COVID-19 pandemic economic stimulus package weakened, consumer demand decreased, and companies that depended on consumers’ voluntary spending were particularly hit hard.
Other major companies that went bankrupt last year included food storage manufacturer Tupperware, restaurant chains Red Lobster and Spirit Airlines, and cosmetics retailer Avon Products.
Gregory Daco, chief economist at accounting and consulting firm EY, said, “Continuously rising costs of goods and services are putting pressure on consumer demand.” He added that the burden is especially greater on low-income families, but that even middle- and high-income families are showing a more cautious attitude.
As the U.S. Federal Reserve (Fed) began lowering interest rates, pressure on businesses and consumers eased somewhat, but the Fed reduced its forecast for the number of interest rate cuts this year from four to two (0.5 percentage points).
However, Peter Chir, head of macro strategy at Academy Securities, said that there are factors that will continue to reduce interest rates, such as ‘the relatively low spread between high-risk corporate borrowings and government bond interest rates (government debt).’
In 2021 and 2022, when the Federal Reserve’s interest rates were low, there were only 777 bankruptcy filings in total.
This rapidly increased to 636 cases in 2023, and continued to increase last year.
At least 30 of last year’s bankruptcy filings had debt of more than $1 billion at the time of filing, according to S&P data.
Meanwhile, the number of out-of-court actions to prevent bankruptcy is generally similar to the number of bankruptcies, and out-of-court actions are becoming increasingly common and have accounted for a significant portion of U.S. corporate defaults in recent years. Joshua Clark, senior director at Fitch Ratings, expects this trend to continue.
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