Is There a Corporate Bankruptcy Storm Brewing?

With the recent and well publicized Chapter 11 Bankruptcy filings of Bed Bath and Beyond and Vice, some are predicting an increase in corporate bankruptcies. The New York Times article linked below states that more than 230 companies have filed for Chapter 11 protection through April of this year, the highest in the same four-month span since 2010. The article points to credit strategists at Bank of America who are predicting an 8% peak in corporate defaults.

How did we get here? The article states that companies are faltering under heavy debt burdens and suffering from both the rise interest rates, and the expiration of pandemic-related government aid. It is no secret that many companies took on much more debt during the Pandemic to take advantage of low interest rates. The Federal Reserve's raising of interest rates, coupled with tightened lending standards, makes it difficult for companies to refinance their debt leading to default on their loans when they become due. According to the article, the industries currently under pressure are financial institutions and consumer discretionary companies, the latter due also to a drop in consumer spending. In addition, I expect many office building landlords to soon join that group as it is widely reported that the work from home phenomenon, brought on in part by the Pandemic, continues to keep office buildings well under capacity in many business districts.

So, how do you "batten down the hatches" as a creditor? It is important that you actively monitor your portfolio and participate in any potential restructuring process. If the indebted company files for Chapter 11 protection, it is important that you engage an experienced attorney early to help guide you through the process. The Creditors' Rights and Bankruptcy group at Taylor English Duma LLP stands ready to help you weather the storm.