☀️☕️ Companies "R” Bust [The MoneyFitt Morning 18/05/23]
The below content comes from today’s issue of The MoneyFitt Morning, a straightforward daily newsletter on what’s important in investing and business, with a topical 60-second Explainer.
Even before former high-flying Vice Media filed for Chapter 11 Bankruptcy Protection🎓 a couple of weeks back, having blown through all the cash that investors repeatedly threw at the consistently money-losing and increasingly debt-ridden private company over the years (valued in 2017 at $5.7bn!) this year was already shaping up to be the worst year for bankruptcies in a decade, according to S&P. By April, 236 large American companies had filed for bankruptcy protection, and that number continues to climb, especially with the “credit crunch” from banks cutting back on their lending and/or charging more. (Bloomberg recently reported that seven large companies filed for Chapter 11 bankruptcy protection in a span of less than 48 hours.)
![Shane Smith of Vice Media wasted all our money already? Here... take some more! (Total funding ended](https://sgsnsimg.moomoo.com/103991689/editor_image/82da5897ad0b314989e60167b694f6fe.gif/bigmoo)
..... ▷ We all heard about massive layoffs at the big tech companies, but struggling companies were already axing workers a year ago to reduce costs and are now “running out of time” in the face of a slowing economy, fast-rising interest rates and persistent inflation. Especially hard hit have been those with growth rather than profitability-focused business models usually egged on by venture capitalists (funded by investors facing 0% on their money) and those with massive debt burdens, many of which were taken over and then piled high with borrowings by private equity firms (also funded by investors facing 0% on their money.)
..... ▷ And particularly with pandemic-era stimmy checks and other government aid disappearing, and with 64% of US consumers reportedly living "paycheck to paycheck", the consumer discretionary sector has been the hardest hit (e.g. Party City, Tuesday Morning, David’s Bridal and Bed, Bath and Beyond, though $Bed Bath & Beyond (BBBYQ.US)$ had other issues of their own making - see MFM from its April filing.)
Firms that were struggling well before the pandemic and the end of ultralow interest rates have now gone to their breaking point - S&P Global Market Intelligence
..... ▷ Of course, Vice wasn't the only digital media company to struggle in recent times, with the likes of The Huffington Post, BuzzFeed, Refinery29 (bought for $400mn by Vice), Mashable, The Verge, Engadget, TechCrunch and Gizmodo already laying off employees, cutting costs and restructuring their businesses. Declining ad revenue (partly due to the rise of ad blockers and the shift to mobile devices), rising costs (of producing high-quality content as well as acquiring new users) and increasing competition (from deep-pocketed tech giants like Google, Facebook and TikTok) make them sound like the old media companies they once disrupted.
📊 In the Markets
Interest rate close call: Wall Street shares were mixed and European markets barely moved as debt ceiling talks in Washington resumed ahead of the June 1st "hard deadline". The Minneapolis Fed's Neel Kashkari said on CNBC that it was a "close call" on whether he'd vote to hike interest rates again at the next meeting or take a pause, and at $JPMorgan (JPM.US)$’s investor day, CEO Jamie Dimon said that "Five percent's not high enough for Fed funds - I've been advising this to clients and banks, you should be prepared for six, seven."
Everyone should be prepared for rates going higher from here - JPMorgan CEO Jamie Dimon
..... ▷ Meanwhile, Dealogic data shows that US companies are concerned that the US debt ceiling negotiations will go wrong and blow up the global financial system, so they are rushing to issue corporate bonds (i.e. to borrow money from the market) while the going is good, demand is high, and rates are relatively attractive. "Investment-grade" companies (the ones who are assessed by credit rating agencies to be more likely to repay their debts) have been bringing forward their planned deals and issued $112bn of bonds so far this month, 3x what they'd issued in April (and more than 4x the same month last year.)
Micron tit-for-tat: Meanwhile, Asian markets were partially lifted by the prospect of demand for $Micron Technology (MU.US)$ memory chips from China going to other Asian suppliers, and Japan chalked up its 8th straight day of gains.
..... ▷ Just as President Biden was saying he expected an imminent "thaw" in relations with China, Beijing barred US memory chipmaker Micron from selling to key domestic industries as it “pose(s) significant security risks to China’s critical information infrastructure” in apparent retaliation against expansive sector controls introduced by the US last year. But the ban seems limited to the telecom and transport sectors while Micron mainly sells to the mobile device and consumer electronics sectors, which Chinese authorities will almost certainly be aware of. So it could be that it's more for show than any real escalation of the conflict between China and the West and probably won't really have a significant real positive impact on Micron's rivals in China (SMIC, Hua Hong Semi) or Korea (Samsung Electronics, SK Hynix).
![☀️☕️ Companies "R” Bust [The MoneyFitt Morning 18/05/23]](https://sgsnsimg.moomoo.com/103991689/editor_image/87aff02c12bf3c9ea9a731100ed0c64a.png/bigmoo)
🎓 MoneyFitt Explains: Chapter 11 Bankruptcy
- When a distressed company, usually one with far too much debt, "files under Chapter 11" of the United States Bankruptcy Code, it means its assets are "protected" from creditors in the sense that the company is allowed to maintain control over its business or property while it reorganises its finances so it can repay its debts over time. Operations are heavily restricted and the company may have to sell some of its assets.
- This way, it can help save jobs and avoid liquidation, though in some cases, it may just be a matter of time before it happens anyway. (In a liquidation, or Chapter 7, the company is wound up and ceases to exist, with all remaining assets after expenses and taxes divided fairly among creditors. Only what is left over, if anything, would go to the shareholders.)
- The company or person owing money is called the "debtor", and the companies or people who are owed money are called the "creditors." Creditors include the taxman (always the taxman), any banks that lent money, suppliers and employees, but not shareholders.
- Any reorganization plan must be in the best interest of the creditors (not the shareholders) and may involve a court-appointed change of management to do so.
![☀️☕️ Companies "R” Bust [The MoneyFitt Morning 18/05/23]](https://sgsnsimg.moomoo.com/103991689/editor_image/d0ecd1e60d2037a38478a53b13d57631.png/bigmoo)
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