More than 400 large companies have filed for bankruptcy in U.S since the beginning of the year, the worst data in a decade due to the COVID-19 pandemic, and in terms of magnitude, with billions of dollars committed across different sectors, an economic earthquake that shows no signs of abating , according to analysts.
“The bankruptcies have impacted a wide range of sectors this 2020 amid the coronavirus pandemic, but consumer-focused industries have been disproportionately harmed, “the firm said. S&P Global Market Intelligence in a report that covers listed companies with assets or debt exceeding US $ 2 million and US $ 10 million in the case of private ones.
His analysts, Tayyeba Irum and Chris Hudgins, put 424 those big bankruptcies accumulated at the beginning of this week, “which exceeds the number of filings in that comparable period since 2010” due to the sharp contraction of the economy.
Analysts still expect that “more companies will suffer as the pandemic of coronavirus stifles activity ”.
There are several types of bankruptcy under US law and business companies generally file for Chapter 11, which allows them to continue operating with a debt restructuring plan that must be approved by creditors, although others choose to liquidate their assets and close establishments to settle the liability.
In all, according to the American Bankruptcy Institute, the largest association of bankruptcy professionals, which reports to lawmakers, as of the end of July more than 4,200 business companies of all sizes had filed for Chapter 11 bankruptcy, and their principal executive Amy Quackenboss estimated in a note that there will be an “increase in the coming months.”
The BankruptcyData platform, which claims the largest database, points out that 46 firms have so far declared debts in excess of $ 1 billion, somewhat more serious than in the last two recessions: at this point in 2009 there were 40 such companies. indebted at the time of bankruptcy and in 2002 only 25, which would mean the largest magnitude of bankruptcies “of all time.”
The CEO of New Generation Research, James Hammond, who manages this platform, said in an interview with Efe that “the ‘shock’ in demand generated by the confinements has accelerated things” and nowadays we hear about chain stores and bankrupt restaurants, but non-profit organizations, universities, museums or hospitals will also begin to be seen.
Some of those firms already had problems before the COVID-19 and his arrival only accelerated the process, especially for those that required physical presence, such as retail, but experts point out that the trend will continue due to its weakness and despite the loans from the United States Government to protect payroll.
Retailers and restaurants, the most impacted
With more than 100 large companies in bankruptcy, the sector most impacted is consumer discretionary, according to the report, which includes a score of retailers with historical names such as Brooks Brothers, the oldest clothing brand in the country; Lord & Taylor, which had the oldest department stores; and popular brands like J.Crew or Ann Taylor.
Probably the most visible retail debacle is the luxury department store Neiman Marcus, which just over a year ago opened a 20,000-square-meter store in the upscale Hudson Yards shopping center in New York, and after the hiatus caused due to the pandemic, he has decided to leave it empty.
“Customers are and will continue to buy differently from before the pandemic”, Anticipated a spokesman for these well-known fashion department stores, which had a debt of more than US $ 5 billion when they took advantage of the Law of Bankruptcies, beginnings of May.
Other “victims” of the wave belong to the restaurant sector, such as NPC International, which operates the Pizza Hut and Wendy’s franchises, affected by the closure of establishments and, as in New York, by the absence of tourism, a problem that has suffocated to a large part of commercial premises in Manhattan.
The following sectors are the industrial and energy sectors, which together include another 100 large bankrupt companies, among which Hertz, specializing in vehicle rental, with some US $ 24,000 million in debt, and Chesapeake Energy, the pioneer of the technique of “fracking. “, with almost US $ 12,000 million of liabilities.
For BankrupcyData, construction and real estate companies are also among the most impacted, as well as health and medical ones, since “hospitals are hard to manage in good times, but if you take away elective surgeries and add the fear of going, there is a demand ‘shock’ itself, “added Hammond.
A bleak future
According to an analysis by the Stifel firm, store closures added to the “migration” to online shopping have contributed to the difficulties of retailers, which can infect companies “exposed” to their debt, while the “Unprecedented drop in energy demand” also suggests more bankruptcies in that industry.
Meanwhile, the application for loans is increasing to avoid layoffs, a “money that helped companies for a few months but not enough, since consumer activity is simply not there. There is a lot of fear of the virus, which continues to leave footprint in the states, “said Ben Schlafman, chief operating officer for New Generation Research.
The National Retail Federation (NRF) of the United States, which highlights how its sector employs one in four Americans and contributes US $ 3.9 billion to GDP, has launched a campaign to support the firms and demand a new package of fiscal stimulus that allows “protecting workers and customers” while they open safely.
“Optimism about the economy and spending in the retail sector is being tested every day by the spread of the coronavirus,” NRF chief economist Jack Kleinhenz said in a note. “Time will tell, but the bottom line is that the economy is far from getting out of danger, “he added.