Despite a whirlwind of reports of economic turmoil in nearly every industry, U.S. corporate bankruptcy filings are at their lowest in more than a decade, according to S&P Global Market Intelligence Data. The 31 filings that occurred in September represented a 16% drop from the 37 filings in August.
As of the end of last month, 279 companies had filed for bankruptcy in 2022, which the S&P report is the lowest since at least 2010. According to S&P data, which includes public and private companies with assets or liabilities of at least $10 million. , the corporate bankruptcy rate in the first nine months is 14% compared to 2021.
“The period of low bankruptcy filings certainly won’t last forever,” said Chris Hudgins, data analyst at S&P Global Intelligence and author of the report. CFO. “Companies that have been able to stay afloat with the help of federal aid may be in trouble if they haven’t addressed underlying business issues.”
Despite the peak of 39 bankruptcies in June, 2022 has seen few medium and large companies go bankrupt. Leading as an industry, industrials registered 48 filings at the end of September. Consumer discretionary companies are not far behind with 43 filings. Health care rounds out the top three with 28 filings so far this year.
Pandemic-induced restrictions on businesses have been the cause of a surge in bankruptcies in 2020, which means the recorded numbers now only look dim in comparison, according to Hudgins.
“We have seen a large number of filings in 2020 as many of the most vulnerable companies filed for bankruptcy during the COVID-19 pandemic,” he said. “Some of these businesses that might have held out a bit longer under normal circumstances were instead pushed to the brink of bankruptcy due to economic conditions.”
According to an October 4 report According to S&P Global Market Intelligence, deteriorating financial conditions suggest that the United States will likely enter a recession with a slight decline in GDP growth, but with unemployment rising from 3.5% to 6%. Therefore, it’s no surprise that analysts like Hudgins think these numbers won’t stay low for too long.
“Due to the acceleration of the timeline for bankruptcy of the most vulnerable businesses in 2020, as well as the availability of government assistance programs helping more border businesses stay afloat, we have seen a small number of filings in 2021 and 2022,” he said. “Given current economic conditions and rising interest rates, I expect to see the pace of bankruptcy filings pick up in the future.”
Asked specifically about the sustainability of falling bankruptcy rates, Hudgins made it clear that it was about letting conditions play out.
“We will have to wait and see how long it will take for the current economic challenges to materialize through bankruptcy filings,” he said. “Government assistance is now coming to an end, and the economy faces new problems with sustained high inflation and rising interest rates.”
Hudgins spoke of the recent evaporation of cheap credit in the US economy, a flow of capital that many businesses of all sizes have relied on to rebuild, expand or stay afloat during and after pandemic-induced woes.
“As interest rates rise, the availability of credit becomes increasingly limited and expensive. Banks are also starting to tighten their lending standards,” Hudgins said. “Companies looking to finance debt may find it difficult and more expensive, which could prove even more troublesome for those with significant debt ahead as their refinancing options narrow.”
Although there were only 13 total filings in 2022, the information technology sector accounts for three of the four largest bankruptcies this year. OSG Group Holdings, Aearo Technologies and Celsius Network each had more than $1 billion in liabilities at the time of their filing. Aearo and Celsius filed for bankruptcy in July and OSG in August,
Unlike the previous three months, September saw no bankruptcy filings with more than $1 billion in liabilities reported across all sectors, the data showed.