Apr 7, 2023 - Economy

Corporate bankruptcies jumped in Q1

U.S. corporate bankruptcy filings
Note: Data includes companies with public debt and assets or liabilities of at least $2 million, or private companies with assets or liabilities of at least $10 million. Data: S&P Global Market Intelligence; Chart: Alice Feng/Axios

Bankruptcy filings by U.S. companies are finally starting to tick up convincingly.

Why it matters: It’s the fated result of the Fed’s rate-hike campaign. When money gets more expensive and lenders get pickier, the number of companies cut off from rescue capital soon rises.

  • And though it may be premature to declare a trend, there’s "little reason to believe that it will let up, given the market forces at work," says Michael Eisenband, FTI Consulting's global co-leader of corporate finance & restructuring.

By the numbers: March had the highest monthly bankruptcy tally since July 2020, when the economy was in the initial throes of the COVID-19 disruption.

  • And the total for the first quarter is more than double Q1 of last year.

But, but, but: The last two years are an extremely low baseline for comparison.

  • After the Fed intervened in the markets in 2020, "bankruptcy filings were as low as I've seen them in my 20-plus years," Doug Mintz, co-chair of Schulte Roth & Zabel's business reorganization practice, tells Axios.
  • "We're now back at a level that historically is pretty modest," he adds.

Go deeper: Another measure of corporate distress — default rates — rose to 2% of outstanding U.S. leveraged debt in February (the most recent available), according to S&P Global.

  • For perspective, that's right where it sat in early 2019, before the COVID crisis — and is lower than it was during 2017 and 2018.

Behind the scenes: So far, the pipeline for the rest of the year's bankruptcies isn't noticeably expanding beyond the Q1 rate, Mintz says.

  • "Unless there's another leg to the breakdown that we saw last month with the banks — which there might be — I don't see some massive wave building today," he adds.
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