Bankruptcy filings slow because of cheap funds
The pace of bankruptcy filings by large U.S. companies is the slowest since the COVID-19 pandemic began, doused by cheap funding that keeps even risky borrowers afloat.
“The level to which our market was propped up on cheap money is huge,” Nellwyn Voorhies, president of corporate restructuring services provider Donlin Recano & Co. Inc., said in an interview. “Those chickens are going to come home to roost,” Voorhies said, predicting a pick up in the pace of bankruptcies later this year.
Just nine companies with liabilities over $50 million have filed for bankruptcy so far in September. That puts the month on course for about 15 filings, down from 33 in May and an average of 26 from April to August.
Cash is flooding back into riskier assets, throwing a lifeline to failing companies that might otherwise be forced to seek Chapter 11 bankruptcy protection. Junk bond issuance is on
track for a record year, as borrowers take advantageof investors chasing yield.
“High yield’s working its way back to PRE-COVID levels and the appetite for risk is growing quickly,” John Mcclain, a portfolio manager at Diamond Hill Capital Management, said last week.
In the week ended Sept. 19, there were two filings by companies with more than $50 million in liabilities, including the owner of the New York Sports Clubs and Lucille Roberts gyms. Then on Sunday, auto-parts maker Garrett Motion Inc. filed
forbankruptcywithplans to sell itself to KPS Capital Partners for $2.1 billion.
To be sure, the month is still on on track to be the busiest September since the Global Financial Crisis. In the same month of 2008, there were 18 bankruptcies by large U.S. companies and 13 the following September, data compiled by Bloomberg show.
There have been 189 bankruptcy filings year-todate by companies with more than $50 million in liabilities, according to data compiled by Bloomberg.