Bankruptcies filed in fastest pace since May 2009
Companies are going under at the fastest rate since the recession era of 2008-2009 in the United States, and more bankruptcies are expected to follow.
In May alone, 27 companies with at least $50 million in reported liabilities filed for bankruptcy protection, the most since 2009 when 29 major companies declared insolvency. Year-to-date, 98 bankruptcies have been filed of the same category, also the highest since 2009 when 142 companies with $50+ million in liabilities filed during the first four months of that year.
The wave of insolvencies has yet to severely impact the U.S. credit market, which is busier than ever. Investment-grade corporations were able to bolster their balance sheets by borrowing more than $1 trillion collectively through May of 2020, the most on record and double the pace of last year.
Of the $1 trillion in new issuance, more than $700 billion of the new debt rolled out in the nine weeks since the Fed announced it would support the corporate bond market on March 23. Credit Flow Research said there has also been roughly $160 billion in high-yield deals.
Weaker companies have seen demand plummet and revenues disappear alongside, forcing them to seek protections in bankruptcy.
The Bureau of Economic Analysis said on Friday that the personal savings rate for Americans hit a historic 33% in April, by far the highest rate since the department began tracking the figure in the 1960's.
Consumers may see no other option other than to save as the novel coronavirus caused government-imposed shutdowns that are only just now being relaxed as new data is reported.
“There’s not much opportunity for many people to go out and spend money,” Megan Greene, Senior Fellow at Harvard Kennedy School, told CNBC. “With shops all closed and everybody locked up, the ‘shopportunities’ have dried up. That speaks to a kind of demand shock.”
It is likely though that consumers will begin spending again as soon as they believe the risk of the virus has sufficiently subsided.
“Sure there’s a lot of despair out there and really difficult stories, but if you look at the consumer as a whole, the consumer has this huge saving right now, and that, once the paralysis is done, that’s pent up demand waiting to be deployed,” said Ark Invest founder Cathie Wood.