More than 400 large companies have declared bankruptcy in the United States since the beginning of the year, the worst figure in a decade due to the COVID-19 pandemic, and in terms of magnitude, with billions of dollars pledged throughout. from different sectors, an economic earthquake that shows no signs of abating, according to analysts.
“Bankruptcies have impacted a wide range of sectors in 2020 amid the coronavirus pandemic, but consumer-centric industries have been disproportionately affected,” S&P Global Market Intelligence said in a report covering listed companies with assets. or debt greater than 2 million dollars and 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 “more companies to suffer as the coronavirus pandemic chokes 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 total, 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 companies that were so in debt. at the time of bankruptcy and in 2002 only 25, which would be the largest number 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 these firms already had problems before COVID-19 and their 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 their weakness and despite loans from the US Government to protect payroll payments.
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 halt caused due to the pandemic, he has decided to leave it empty.
“Customers are and will continue to buy differently compared to before the pandemic,” anticipated a spokesman for these well-known fashion department stores, which had a debt of more than 5,000 million dollars when they filed for the Bankruptcy Law, at the beginning 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 industrial and energy, which together include another 100 large bankrupt companies, including Hertz, which specializes in car rental, with some 24,000 million in debt, and Chesapeake Energy, the pioneer of the “fracking” technique. with almost 12,000 million 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 SHADY 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 U.S. National Retail Federation (NRF), which highlights how its industry employs one in four Americans and contributes $ 3.9 trillion to GDP, has launched a campaign to support the firms and claim Congress. a new fiscal stimulus package to “protect 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.