U.S. Bankruptcy Filings Set to Surpass 2020 Numbers
In a disheartening trend, U.S. bankruptcy filings have continued to rise in September, indicating that 2023 might become the worst year for corporate bankruptcies in over a decade.
According to S&P Global Market Intelligence, September alone witnessed 62 bankruptcy filings, bringing the total for the third quarter up to 182. This figure is higher than the 157 filings recorded in the second quarter. Consequently, the total number of filings for 2023 now stands at 516.
To put things in perspective, by the end of the third quarter in 2020, a year characterized by a brief but brutal recession due to the COVID-19 outbreak, there were 518 bankruptcy filings. This indicates that the current pace of filings is comparable to that distressing year.
Interestingly, the data from S&P also reveals that there have been more corporate bankruptcies in 2023 than in either 2021 or 2022.
If the rate of filings continues to accelerate towards the end of the year, it is highly possible that 2023 will surpass the total number of filings in 2020. Such an outcome would make it the worst year for corporate bankruptcies since 2010, when a staggering 827 companies sought protection from creditors.
Amidst these alarming statistics, it is worth noting that SmileDirectClub Inc. accounted for the largest bankruptcy filing of the quarter. With liabilities exceeding $1 billion, this oral-care company was the sole billion-dollar casualty during the third quarter. This number marks a decrease from the two billion-dollar bankruptcies witnessed in the previous quarter, as reported by S&P Global.
Economic Recession and Corporate Vulnerability
This year has witnessed a series of high-profile bankruptcies, with notable mentions being the retailer Bed Bath & Beyond and trucking company Yellow Corp. The situation has raised concerns about the possibility of the U.S. economy sliding into a recession. These concerns were reinforced as long-dated Treasurys experienced a surge in yields, reaching their highest levels in 16 years. Additionally, the Federal Reserve's announcement of its intention to maintain higher interest rates for an extended period added to the worries.
Companies holding investment-grade credit ratings have managed to shield themselves to a certain extent from the rising borrowing costs. These corporations took advantage of the low interest rates available during the peak of the COVID-19 pandemic. On the other hand, credit analysts have issued warnings about the increasing vulnerability of businesses with lower credit ratings. These companies had no choice but to resort to loans with floating interest rates, exposing them to significant risks.
A recent report from Goldman Sachs Group further emphasizes the precarious situation, stating that nearly half of all publicly-traded companies in the U.S. are currently unprofitable. This makes them highly susceptible to the impact of rising interest rates.
The specter of a recession hangs ominously over U.S. corporations, leading to growing apprehension. Prominent figures on Wall Street such as Dr. Ed Yardeni and Paul Tudor Jones have echoed these concerns, expressing their belief that a recession is becoming increasingly likely.
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