U.S. bankruptcies hit 15-year low
Total U.S. bankruptcy filings fell to their lowest level since February 2006 last month as massive liquidity and eager bond investors helped prop up businesses throughout the country.
By the numbers: January saw just 32,298 filings, a 6% decline from December, and a 44% decrease from January 2020, according to data from legal services company Epiq.
Between the lines: "Out of court solutions, available liquidity, and general uncertainty has caused a significant pause in Chapter 11 filings this past month," said Deirdre O’Connor, senior managing director of corporate restructuring at Epiq.
- "We appear to be suspended in an air bubble at the moment."
What's happening: Despite the economy's struggles, big businesses have been able to borrow money through credit markets thanks to a massive surge of liquidity and backing from the Fed, which is expected to step in and buy more bonds should markets tighten.
- This has created a feeding frenzy among bond investors that led to record bond sales in 2020 and allowed even companies with junk ratings to raise substantial capital.
But, but, but: Small businesses have not fared as well as their larger counterparts. Many don't file for bankruptcy when they go out of business, and one in three respondents to a recently released survey by the Fed said that without additional government assistance they would not survive.
- Further, the Fed's January senior loan officer survey found that even as credit markets have opened, many banks continued to tighten their lending standards for commercial and industrial loans in the last three months of 2020.