Corporate bankruptcies jumped in Q1
Add Axios as your preferred source to
see more of our stories on Google.
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.
