Bankruptcies among U.S. corporations have hit their highest level in recent years, with sectors like consumer discretionary, health care, and industrials leading in terms of bankruptcy filings, according to a recent report from Standard & Poor’s.
“Growing economic headwinds and a tight domestic labor market are putting more pressure on struggling companies. In the first 10 months of the year, 561 companies sought bankruptcy protection, more than any year since 2010, except for 2020,” said a Nov. 8 report by S&P Global Market Intelligence. A total of 50 companies filed for bankruptcy in October. While this was the second-lowest monthly total for the year, it is still elevated compared to monthly filing totals for most of 2021 and 2022.
The 561 bankruptcies, as of October this year, is up from 372 bankruptcies for the entirety of 2022 and 406 in 2021. With two months remaining in the year, the number of bankruptcies looks set to exceed the 639 bankruptcies filed in 2020.
While the 50 bankruptcies in October is a lower number compared to 61 in September, the report noted that more firms with large liabilities “buckled under the weight of higher interest rates” in the month.
“Four companies with over $1 billion in liabilities—MVK FarmCo LLC, Rite Aid, Akumin Inc., and Air Methods—sought bankruptcy protection in October, more than any other month this year and up from just one such filing in September,” the report said. So far this year, 21 companies with liabilities exceeding $1 billion have filed for bankruptcy.
While consumer spending is “remarkably robust,” all companies have not benefited equally from such spending, the report noted.
In October, consumer discretionary and healthcare sectors were the hardest hit with seven bankruptcy filings each. This was followed by the consumer staples sector with five bankruptcies.
Overall for 2023, consumer discretionary has seen 71 bankruptcy filings, followed by health care at 69, industrials at 64, financials at 32, and consumer staples at 22.
Just four states combined accounted for more than half of October’s bankruptcy filings. “California added 10 bankruptcies in October, bringing the state’s total to 1,210 since 2010, while bankruptcies in Texas rose by six to 984,” it said.
WeWork Bankruptcy
Workspace-sharing company WeWork is the latest big corporation to file for bankruptcy. The filing was done on Nov. 6 in the United States and Canada.The company claimed the filing was part of a “comprehensive reorganization to strengthen its capital structure and financial performance and best position the company for future success.”
It is not clear how many of WeWork’s office locations would remain open. In a recent filing, the company said that it had 777 locations in 39 nations.
Speaking to the Associated Press, CEO David Tolley said that he expects the firm to exit additional locations as discussions with landlords continue. Mr. Tolley also expressed optimism that things would improve in the coming year.
“In a year, we’re going to be right where we are today. We are open for business for half a million people … all around the world,” he said. “The only difference is a year from now the company will be profitable in a way that it just has never gotten to in the past.”
During the second quarter, WeWork reported a net loss of $397 million. For the first six months of 2023, the company’s net loss stood at $696 million. In August, company officials had warned that the firm was facing financial difficulties and may cease to exist in the next 12 months.
“As a result of the company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the company’s ability to continue as a going concern,” WeWork said in its second-quarter earnings release.
The bankruptcy of WeWork has hit Japanese tech firm SoftBank Group Corp. hard as it owns nearly 80 percent stake in the workspace sharing venture.
Bankruptcies Soar
The S&P Global Market Intelligence data on bankruptcies only tracks certain companies with assets or liabilities equaling millions of dollars.Another measure of bankruptcy data is published by the Administrative Office of the U.S. Courts. In the year ended Sept. 30, 2023, a total of 17,051 business bankruptcies were filed, up from 13,125 from a year ago—an increase of almost 30 percent.
Data from Epiq Bankruptcy, the leading provider of U.S. bankruptcy filing data, showed that overall commercial bankruptcy filings rose 14 percent to 2,188 in October 2023 compared to the same month last year.
In a Nov. 1 press release, Amy Quackenboss, executive director at the American Bankruptcy Institute (ABI) pointed out that “increased prices for goods and services, along with higher borrowing costs, add to the economic challenges faced by distressed families and businesses.”
“Bankruptcy provides a proven process for struggling consumers and companies to alleviate their intensifying debt loads and a chance for a financial fresh start.”
