Bankruptcies don’t generally skyrocket when the economy is doing well. From Wolf Richter at wolfstreet.com:
Instead of that promised “escape velocity.”
This year through June, there have been 91 corporate defaults globally, the highest first-half total since 2009, according to Standard and Poor’s. Of them, 60 occurred in the US. Some of them are going to end up in bankruptcy. Others are restructuring their debts outside of bankruptcy court by holding the bankruptcy gun to creditors’ heads. In the process, stockholders will often get wiped out.
These are credit fiascos at larger corporations – those that pay Standard and Poor’s to rate their credit so that they can sell bonds in the credit markets.
But in the vast universe of 19 million American businesses, there are only about 3,025 companies, or 0.02% of the total, with annual revenues over $1 billion; they’re big enough to pay Standard & Poor’s for a credit rating.
About 183,000 businesses, or less than 1% of the total, are medium-size with sales between $10 million and $1 billion. Only a fraction of them have an S&P credit rating, and only those figure into S&P’s measure of defaults. The rest, the vast majority, are flying under S&P’s radar. About 99% of all businesses in the US are small, with less than $10 million a year in revenues. None of them are S&P rated and none of them figure into S&P’s default measurements.
So how are these small and medium-size businesses doing – the core or American enterprise?
Total US commercial bankruptcy filings in June soared 35% from a year ago, to 3,294, the eighth month in a row of year-over-year increases, the American Bankruptcy Institute (in partnership with Epiq Systems) reported today. During the first half, commercial bankruptcy filings soared 29% to 19,470. Among the various filing categories:
Chapter 11 filings (company “restructures” its debt at the expense of stockholders and unsecured creditors by shifting ownership to creditors, but continues to operate) soared 36% to 499 in June and 25% in the first half to 3,220.
Chapter 7 filings (company throws in the towel and “liquidates” by selling its assets and distributing the proceeds to creditors) jumped 28% in June to 1,909, and 25% in the first half to 11,211.
Like so many things, bankruptcy is a seasonal business – and one of the few truly booming businesses in the US at the moment. While stockholders and some creditors pay the price, lawyers and many others on the inside track, including hedge funds and private equity firms that are able to pick up assets for cents on the dollar, have a lot to gain. And if a company emerges with a more manageable debt load, it too might eventually prosper, though multiple bankruptcies are not uncommon.
Commercial bankruptcy filings reach their annual peaks in March or April, and this year is no different. While June filings edged down by 64 from May, the five-year average seasonal decline for the period, at 275, is over four times higher. And the seasonal decline in June was the lowest for any June since the Financial Crisis.
To continue reading: The Big Unravel: US Commercial Bankruptcies Skyrocket
