Bankruptcy Filings Rise as Businesses Struggle to Repay Debt

Bankruptcy filings have seen a significant increase this year as businesses grapple with rising interest rates that make it difficult to meet their debt obligations. According to a report from S&P Global Market Intelligence, there were 62 public and private corporate bankruptcies filed in September, up from 56 in August. This brings the total for the year to 516, just shy of the 518 filings during the first three quarters of 2020 when the U.S. economy experienced a short but severe recession due to the pandemic.

Insolvency cases have consistently remained high throughout the year, with more than 50 filed each month, a level not seen since early 2021. The Federal Reserve's decision to increase interest rates in order to combat inflation and reduce demand for goods and services seems to be a major contributing factor. As companies face higher borrowing costs, their sales are also at risk.

Some companies are finding it harder to secure loans as a result. Take Instant Brands, the manufacturer of popular products like Instant Pot and Pyrex glassware, which filed for bankruptcy in June. The company cited the tightening of credit terms and higher interest rates as factors that negatively impacted their liquidity levels and made their capital structure unsustainable.

Another example is Voyager Aviation Holdings (ticker: VAH), an aircraft lessor that voluntarily filed for Chapter 11 bankruptcy in July, also due to higher interest rates.

The healthcare sector has witnessed the highest number of bankruptcies in September alone, with a total of 11 cases (excluding businesses that were not listed by S&P under any specific segment). So far this year, there have been 63 bankruptcies within the healthcare sector. One noteworthy case is SmileDirectClub (SDC), a teeth-alignment business that went public approximately four years ago.

Surpassing even the healthcare sector, the consumer-discretionary sector has experienced the highest number of bankruptcies in 2021, totaling 64 by the end of September. Notable companies within this sector include U.S. Auto Sales, a car dealer catering to customers with subprime credit, which filed for bankruptcy protection in August.

In conclusion, the surge in bankruptcy filings reflects the challenges faced by businesses coping with rising interest rates and their inability to repay debts. The impact of these filings has been particularly evident in the healthcare and consumer-discretionary sectors. As the trend continues, it is crucial for businesses to navigate these financial difficulties effectively.