U.S. equity markets might be reaching new record highs despite the state of corporates’ health in the U.S. keeps deteriorating. Data compiled by Bloomberg show the Covid-19 pandemic helped fuel the worst third quarter on record for large corporate bankruptcies. In the details, 70 companies with more than $50 million in liabilities sought bankruptcy protection last quarter. That compares to the 76 in the prior quarter.
🇺🇸 The #Covid_19 pandemic helped fuel the worst third quarter on record for large corporate bankruptcies. 70 companies with more than $50 million in liabilities sought bankruptcy protection last quarter. That compares to the 76 in the prior quarter – Bloomberg data pic.twitter.com/KTENKhWPrS
— Christophe Barraud🛢 (@C_Barraud) October 2, 2020
On Monday, Reuters also highlighted “U.S. commercial bankruptcy filings are up 33% so far this year with new cases in September surging by 78% from a year earlier as the recession triggered by the COVID-19 pandemic hits small businesses.” It added that “Chapter 11 bankruptcy filings totaled 747 last month, up from 420 a year earlier and from 525 in August, legal services firm Epiq said in a monthly report.”
In the meantime, S&P Global Market Intelligence’s bankruptcy analysis revealed that “a total of 509 companies have gone bankrupt this year as of Oct. 4, exceeding the number of filings during any comparable period since 2010.” Several proxies, including the number of permanent job losers, confirmed that bankruptcies are on track to spike in the short term.
Unfortunately, this trend is likely to continue in the coming months. According to the latest Ficth report, the “three-year 2020–2022 cumulative US default rate forecasts for term loan (LL) and high-yield (HY) bonds are 17%-20% and 15%-18%, respectively. This forecast compares with the three-year cumulative default rate of 15% for LL and 22% for HY bonds from 2008 to 2010 occurring as a result of the Great Recession.”