Tag Archives: Commercial bankruptcies

Consumers and Businesses Buckle under their Debts, by Wolf Richter

Posted on July 7, 2017 | Leave a comment

Towards the end of a long-running recovery you would expect bankruptcies to tick up, and so they are. From Wolf Richter at wolfstreet.com:

Bankruptcies surge as the “credit cycle” exacts its pound of flesh.

Commercial Chapter 11 bankruptcies – an effort to restructure the business, rather than liquidating it – jumped 16% year-over-year in June to 581 filings across the US. Total commercial bankruptcies of all types, by large corporations to tiny sole proprietorships, rose 2% year-over-year to 3,385 filings, according to the American Bankruptcy Institute. This was up 39% from June 2015 and up 18% from June 2014.

Commercial bankruptcies topped out at 9,004 in March 2010. By that time, credit conditions had been easing for a year, and liquidity was chasing yield. Not much later, even zombie companies – if they were large enough – were able to refinance their debts and borrow more to fund their operations and keep creditors happy. Bankruptcies fell sharply: In September 2015, they bottomed out at 2,217 filings.

Then the energy bust hit. Oil-and-gas companies along with coal companies began toppling, and bankruptcy filings surged. But in 2016, oil prices more than doubled off their lows. New money began pouring into the sector again. And drillers that had been cash-flow negative for two decades and had lost dizzying piles of money were able to refinance their debts and get new money to drill into the ground and live another day. And the waves of energy bankruptcies receded.

But now the next wave is building, with large and small retail operations at the forefront. I’ve covered only the largest chains of the brick-and-mortar meltdown, but there are many smaller operations, mom-and-pop stores, fashion shops, and the like that have quietly given up.

Bankruptcies are very seasonal, with peaks around the end of tax season and sharp declines in the following months. The data, which is not seasonally adjusted, gives a raw and noisy impression of how businesses are faring in this economy.

To continue reading: Consumers and Businesses Buckle under their Debts

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Great Debt Unwind: Consumer Bankruptcies Jump, First since 2010. Commercial Bankruptcies Spike, by Wolf Richter

Posted on April 8, 2017 | Leave a comment

Increasing commercial and consumer bankruptcies is generally not a sign of economic vigor. From Wolf Richter at wolfstreet.com:

But don’t blame the oil bust.

Commercial bankruptcy filings, from corporations to sole proprietorships, spiked 28% in March from February, the largest month-to-month move in the data series of the American Bankruptcy Institute going back to 2012. They’re up 8% year-over-year. Over the past 24 months, they soared 37%! At 3,658, they’re at the highest level for any March since 2013.

Commercial bankruptcy filings skyrocketed during the Financial Crisis and peaked in March 2010 at 9,004. Then they fell sharply until they reached their low point in October 2015. November 2015 was the turning point, when for the first time since March 2010, commercial bankruptcy filings rose year-over-year.

Bankruptcy filings are highly seasonal, reaching their annual lows in December and January. Then they rise into tax season, peak in March or April, and zigzag lower for the remainder of the year. The data is not seasonally or otherwise adjusted – one of the raw and unvarnished measures of how businesses are faring in the economy.

Note that there is no “plateauing” in this chart: since the low-point in September 2015, commercial bankruptcies have soared 65%! That red spike is the mega-increase in March:

At first, they blamed the oil bust. The price of oil began to collapse in mid-2014. By 2015, worried bankers put their hands on the money spigot, and a number of companies in that sector, along with their suppliers and contractors, threw in the towel and started filing for bankruptcy protection. But now the price of oil has somewhat recovered, banks have reopened the spigot, Wall Street has once again the hots for the sector, new money is gushing into it, and oil & gas bankruptcy filings have abated.

To continue reading: Great Debt Unwind: Consumer Bankruptcies Jump, First since 2010. Commercial Bankruptcies Spike

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The Great Debt Unwind: Business Bankruptcies Soar 38%, by Wolf Richter

Posted on October 6, 2016 | 2 comments

Increasing bankruptcies are part and parcel of deflationary debt contractions. From Wolf Richter at wolfstreet.com:

Six years of Fed & Wall Street hype come home to roost

Something funny happened on the way to the bank: In August, commercial and industrial loans outstanding at all banks in the US fell for the first time month-to-month since October 2010, which had marked the end of the collapse of credit during the Financial Crisis.

In October 2008, the absolute peak of the prior credit bubble, there were $1.59 trillion commercial and industrial loans outstanding. As the Great Recession chewed into the economy, C&I loans plunged. Many of them were cleansed from bank balance sheets via charge-offs. But then the Fed decided what the US needed was more debt to fix the problem of too much debt, thus kicking off what would become the greatest credit bubble in US history. By July 2016, C&I loans had surged to $2.064 trillion, 30% above their prior bubble peak.

But in August, something stopped working: C&I loans actually fell 0.3% to $2.058 trillion, according to the Federal Reserve Board of Governors. That translates into an annualized decline of 3.8%, after an uninterrupted six-year spree of often double-digit annualized increases. Note that first month-to-month dip since October 2010:

t’s still too early to tell how significant this dip is. It’s just the first one. It could have occurred because companies borrow less because they need less money as there’s less demand, and expansion is no longer on the table. Or it could have occurred because banks are beginning to tighten their lending standards, with one hand on the money spigot. And all this is occurring while banks write off more nonperforming loans (and thus remove them from the C&I balances) that have resulted from mounting defaults and bankruptcies by their customers.

The ugliest credit stories in terms of bonds, according to Standard & Poor’s Distress Ratio, are the doom-and-gloom categories of “Energy” and “Metals, Mining, and Steel.” Next down the line are two consumer-facing industries: brick-and-mortar retailers and restaurants.

But these metrics by credit ratings agencies are based on companies that are big enough to be rated by the ratings agencies and that are able to borrow in the capital markets by issuing bonds. The 18.9 million small businesses in the US and many of the 182,000 medium size businesses don’t qualify for that special treatment. They can only borrow from banks and other sources. And they’re not included in those metrics.

But when they go bankrupt, they are included in the overall commercial bankruptcy numbers, and those numbers are getting uglier by the month.

In September, US commercial bankruptcy filings soared 38% from a year ago to 3,072, the 11th month in a row of year-over-year increases, according to the American Bankruptcy Institute.

For the first nine months of 2016, commercial bankruptcy filings jumped 28% compared to the same period in 2015, to 28,789. Most of those are not the bankruptcies we hear about in the financial media. Most of them are small businesses that go that painful route – painful for their creditors too – in the shadows of the hoopla on Wall Street.

To continue reading: The Great Debt Unwind: Business Bankruptcies Soar 38%

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The Great Debt Unwind Beneath the Surface: US Commercial Bankruptcies Soar, by Wolf Richter

Posted on September 7, 2016 | Leave a comment

The debt contraction gathers steam. From Wolf Richter at wolfstreet.com:

They’d believed in six years of Wall Street hogwash.

Not that you would have guessed from the stock market, hovering at all-time highs, or from soaring junk bonds, even the riskiest paper: CCC-and-below rated junk bonds skyrocketed since their February 12 low as their average yield plunged from 21.6% to 13.5%. Even the S&P US Distressed High Yield Corporate Bond index has soared 57% since February 12.

Those are miracles to behold.

At the slightest squiggles of the market, the Fed goes into bouts of by now embarrassing flip-flopping on rate increases that demonstrate to the world that they have absolutely nothing else in mind than keeping the stock market inflated and keeping the biggest credit bubble in US history from unceremoniously imploding.

And the ECB is out there with its scorched-earth monetary policies, with negative interest rates and bond purchases, including asset backed securities and corporate bonds, that it has been caught buying directly from issuers. It’s driving even corporate bond yields into the negative. Just now, French drugmaker Sanofi and German household products maker Henkel issued bonds with negative yields, thus getting paid by these hapless investors to borrow.

The idea for bondholders being that you have practically no income throughout and get “most” of your money back at maturity. An idea that is sending NIRP refugees into US assets, driving up their values and pushing down their yields. It all works wonderfully.

But beneath this magic is the real US economy, and there, despite this flood of money and the low interest rates and the soaring stocks, and all the shenanigans to keep the credit bubble from imploding, business bankruptcies are soaring.

In August, US commercial bankruptcy filings jumped 29% from a year ago to 3,199, the 10th month in a row of year-over-year increases, the American Bankruptcy Institute, in partnership with Epiq Systems, reported today.

There’s money to be made. While stockholders and some creditors get raked over the coals, lawyers make a killing on fees. And some folks on the inside track, hedge funds, and private equity firms can make a killing picking up assets for cents on the dollar.

Bankruptcy is one of the few booming sectors in the US at the moment. But it’s seasonal. Commercial bankruptcy filings reach their annual peak in March and April. Then in June and July, filings typically decline, and they did so this year too. http://wolfstreet.com/wp-content/uploads/2016/09/US-commercial-bankruptcies-2012-2016_08.pngAnd in August, filings jumped. But the moves are far beyond seasonal.

In August, the worst August since 2013, bankruptcy filings were up 44% from September last year, the low point in this multi-year cycle, and up 29% from August last year:

During the financial crisis, commercial bankruptcy filings soared, peaking in March 2010 at 9,004. Then they fell sharply on a year-over-year basis. In March 2013, the yeahttp://wolfstreet.com/wp-content/uploads/2016/09/US-commercial-bankruptcies-yoy-change2013-2016_08.pngr-over-year decline in filings reached 1,577. Filings continued to fall, but at a shrinking pace, until November 2015, when for the first time since March 2010, they rose year-over-year. That was the turning point:

To continue reading: The Great Debt Unwind Beneath the Surface: US Commercial Bankruptcies Soar

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