The wind of ‘quiet bankruptcy’ is blowing in the United States. Despite the good performance of some companies, the number of companies that are shutting down without notice is also rapidly increasing. It is said to be the largest bankruptcy in the U.S. market in nearly 10 years.
According to Standard & Poor’s (S&P) Global, an American financial information company, on the 5th, 516 American companies had filed for bankruptcy as of the end of September this year. This is a 96% increase compared to the number of companies (263) that filed for bankruptcy during the same period last year.
In particular, this number is higher than the same period in 2020 (518 places) when the COVID-19 pandemic hit the world and is considered the highest since 2010.
The explanation is that one year after each company took measures to reduce costs, such as mass layoffs, due to the economic downturn that began in the second half of last year, more and more companies are unable to survive and are going bankrupt.
Joe Davis, chief economist at Vanguard Group, said, “The interest rate hike by the U.S. Federal Reserve is expected to be prolonged, and companies that can no longer benefit from cost reductions will have no choice but to seek the Chapter 11 bankruptcy card.”
In particular, as the bankruptcy phenomenon worsened last month, concerns are growing that the fourth quarter of this year will be a graveyard for companies. Last month, Rite Aid, the largest pharmaceutical chain in the United States, shocked the market by filing for bankruptcy, unable to cover debts amounting to $3.3 billion.
Walgreens, a powerhouse in the drugstore industry, once attempted to acquire the company, but the U.S. Federal Trade Commission (FTC) exercised its veto over monopoly concerns, and the company was unable to withstand the economic downturn.
Shift, an online-based used car sales platform that rapidly expanded during the pandemic, also recently filed for bankruptcy under Article 11 of the Bankruptcy Act. Due to accumulated deficits, cash reserves had fallen to rock bottom, and it was decided that there was no way to infuse funds anymore, so the company went through liquidation procedures.
After debuting on the Nasdaq market through a special purpose acquisition (SPAC) listing in 2020, Shift enjoyed unprecedented growth as online vehicle sales gained attention during the pandemic. However, there is analysis that financing has become difficult as the used car market cooled last year, and interest rates rose. Among these, Shift acquired competitors such as Fair and Calotts to increase its market share in the industry, but this resulted in lowered resilience.
Regarding the rapid increase in bankruptcies, Matt Osborne, head of Cornerstone Research, said, “Compared to last year, we are already seeing more than twice as many ‘mega-level bankruptcies’,” and added, “The pace of bankruptcies is increasing rapidly in the retail, service, and manufacturing sectors.” I pointed it out. He added, “In particular, the increase in operating costs due to inflation, the burden of debt service due to rising interest rates, the blow from the pandemic, and the decrease in consumer demand are combined to create a worst-case scenario.”
The economic recovery is slowing, and the number of companies at risk of going bankrupt within a few months is increasing due to the debt burden caused by interest rate hikes.
According to Forbes, the long-term debt of Curate Retail, a video-based commerce chain, has reached $5.268 billion, raising the prospect that it will not be able to survive for several months. Petco, the largest dog supply chain in the United States, has debt of $1.628 billion.
Following this, retail chains Joan Store ($976 million) and Far fetch ($917 million) is also being mentioned. According to S&P Global, as of September this year, consumer goods companies had the most bankruptcies with 64, followed by healthcare with 63.
The healthcare industry, which has been recording accumulated losses due to a decrease in patients since the pandemic, is also undergoing large-scale restructuring.
Envision Healthcare, which once had about 17,000 medical personnel, has gone through bankruptcy proceedings. Babylon, a digital health company, also suspended operations in August.