Doo Prime: Bankruptcy in the Current State of the US Economy

Depu CapitalNoted that although the S & P 500 is about to break through this year's high, the phenomenon behind this is that the United States is facing a bankruptcy crisis. According to S & P Global Markets data, there were 236 bankruptcy filings in the first four months of this year, more than double the number in 2022 and setting a record since 2010.

With interest rates rising and financial marekts wary of borrowers, credit has tightened. More and more companies that rely on cheap money are beginning to face the elimination of the market, and large companies are particularly affected. In recent weeks, several well-known large companies, including Bed Bath & Beyond and Vice Media, have filed for bankruptcy protection. These companies all have hundreds or even thousands of employees, even though their finances were in a precarious state before the recent economic turmoil.

Depp Capital noted that the wave of bankruptcies did not slow down in May. The third week of May was a busy week for bankruptcy filings so far this year, with eight companies with more than $500 million in debt filing for bankruptcy protection. This is a alarming phenomenon, especially considering that the monthly average of bankruptcy filings in 2022 was only three.

Among the big corporate bankruptcies filed this year are the defunct "media empires" Vice Media, Envision Healthcare and Camerronics International, with 27 so far in 2023 compared with 40 for all of 2022, according to bankruptcydata.com.

Mark Zandi, chief economist at Moody's Analytics, said the growth in bankruptcies was moderate for every type of company, regardless of size, and filings remained below pre-epidemic and historically normal levels. However, the number of bankruptcy filings, especially for large non-profits, has risen rapidly due to rising interest rates, Fed tightening during the epidemic and slowing sales growth due to a cooling economy.

We at Depp Capital believe that this is a phenomenon that requires intense attention. When interest rates return to pre-Great Recession levels and the government's epidemic support program is coming to an end, the number of companies that are overburdened with debt is likely to increase further. According to the Bloomberg U.S. High Yield Index, the yield ratio on junk bonds has more than doubled from less than 4% in 2021. This not only reflects the market's attitude towards high-risk investments, but also hints at rising borrowing costs for businesses.

The Federal Reserve has warned that the recent turmoil in the banking sector could cause banks to further tighten credit to companies, which could be a serious challenge for companies that borrowed heavily during the pandemic. "High interest rates and massive borrowing could lead to an increase in'hard restructurings, 'possibly because of running out of money and the inability to refinance," said Bill Drew, an investment banker at Morris. In that case, even if every option is exhausted, some companies may not be able to get out of the woods.

Some consumer discretionary companies have been hit as US consumers cut back on discretionary spending in response to high inflation, including Plant-Based Pizza Boston, directory retailer AmeriMark Interactive and the Party City retail chain.

Last month, however, clothing retailer David's Bride filed for bankruptcy twice in five years and said it was looking for a new owner. The company also plans to cut more than 9,000 jobs nationwide. The 70-year-old company said its business had been dragged down by a "post-epidemic environment and uncertain economic conditions".

In addition, Bed Bath & Beyond, a long-struggling retailer, filed for bankruptcy in late April in what could be a high-profile recent bankruptcy case. The company had done well during the epidemic because of rising home consumption in the United States, but its business began to decline when economic conditions changed and high inflation cut into disposable consumption.

When we at Depp Capital looked at these bankruptcies, we found one thing in common: the end of loose monetary policy has put some large, heavily indebted companies under tremendous pressure. For example, Vice Media disclosed in its bankruptcy filing that years of negative cash flow had forced it to borrow heavily to stay afloat, and that rising interest rates had made it more expensive to refinance its debt.

S & P pointed out that the turmoil in the banking sector has led to a slight increase in bankruptcy filings this year. Silicon Valley Bank, for example, collapsed after a run on deposits, making it a high-profile bankruptcy in the banking industry in recent times. Moreover, the industry as a whole is likely to come under more pressure in the coming years as S & P Global estimates that the historical 12-month default rate for speculative-grade securities could rise from the current 2.5 per cent to 4.5 per cent.

At financial marekt, we always keep a close eye on these developments and are always committed to helping our clients navigate this uncertainty. We study market trends in depth to protect our investors from market volatility to the greatest extent possible. In addition, our years of experience at financial marekt allow us to provide up-to-date, accurate investment advice to help clients stay stable and generate returns in volatile markets.

Overall, the U.S. economy is currently facing a number of challenges, including an increase in the number of corporate bankruptcies, financial marekts, and inflationary pressures. However, our in-depth understanding and experience of the market at Depp Capital allows us to accurately predict market trends and provide timely investment advice to protect our clients from market changes.

As a financial company with a long history, Depp Capital will continue to adhere to the principle of customer first, by providing professional financial solutions to help clients find stability and success in this changing world.