In this year’s third quarter, 182 major U.S. businesses filed bankruptcy, according to S&P Global Market Intelligence.
For the second consecutive month, health care companies led the way to the courthouse.
The U.S. Federal Reserve’s “higher for longer” interest rate policy carries most of the blame for the busts, S&P said.
Many of the companies that failed were “zombie” businesses, Yahoo Finance reported—unprofitable companies that survived on continuous borrowing in hopes of turning themselves around. In today’s high-risk, high-interest economy, lenders are no longer interested in taking a flyer on long-odds companies.
TREND FORECAST: With the U.S. Federal Reserve pledging to hold interest rates at their current levels, if not higher, well into next year, the number of bankruptcies will continue to grow.
Companies with high-risk credit ratings will lead the way, as we predicted in “$500 Billion in Distressed Corporate Debt Presages Wave of Bankruptcies” (25 Jul 2023).
However, once high interest rates have scoured out the junk bond market, companies with better credit ratings also will begin to feel the pinch and see their ratings downgraded, making it harder for them to issue new debt or refinance old ones.
This is another way in which sustained higher interest rates will tighten the credit crunch and push the U.S. toward recession.