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U.S. bankruptcies expected to rise as federal assistance expires

On Behalf of | Nov 7, 2022 | Corporate Bankruptcy & Restructuring

Public and private corporate bankruptcies are now lower than in over a decade. Here’s how that happened and why it won’t last.

How it started

Through the end of September of this year, 279 companies with assets or liabilities of at least $10 million have filed for bankruptcy in the U.S. That’s a 14% drop from this time in 2021.

The bankruptcy data for large companies with assets of $100 million or more is similarly low. After an alarming high of 155 bankruptcies in 2020, that number dropped to 70 in 2021. In the first half of 2022, there were 20 bankruptcies. Since 2005, the annual average of large company bankruptcies is 78.

“Mega-bankruptcies,” companies with assets of $1 billion or more, numbered 60 in 2020, dropping to 20 in 2021. The first half of 2022 saw 11 mega-bankruptcies.

How it’s going

While the pandemic started with a surge in corporate bankruptcies in 2020, federal aid arrived and saved many companies from the brink.

While the bankruptcy numbers in 2022 are low, they’re only low compared to the hectic numbers in 2020 and even the pre-pandemic numbers in 2019.

The pandemic has transformed the landscape for numerous industries. Some companies were already struggling before the pandemic and were bailed out by federal aid. Other companies survived the seismic movement but are not yet on solid enough ground in the new terrain. If they don’t correct their respective challenges, both groups will face a reckoning when federal aid ends.

Looking ahead

Popular opinion is that the U.S. will be in a recession soon, with the rest of the world following shortly. Political uncertainty in the U.K. and China is shaking markets, while much of Europe faces a harsh winter, with fuel availability and costs looking bleak due to the war in Ukraine. Virtually the entire planet is suffering high inflation.

In the U.S., the enviable unemployment numbers in 2022, standing at 3.5% as of this writing, are predicted to increase to 6%. The Federal Reserve is expected to continue raising interest rates to cool the economy. Slower GDP growth is likely, corporate debt levels are rising and banks are backing away from the lending heyday of cheap credit, leaving corporations with fewer and more expensive options for staying afloat.

All of this is certain to accelerate corporate bankruptcies. “Those companies that were able to stay afloat with the help of federal assistance may be in trouble if they haven’t addressed underlying business issues,” says Chris Hudgins, data analyst at S&P Global Intelligence. “We will have to wait and see how long it takes for the current economic challenges to materialize through the bankruptcy filings.”