Bankruptcy applications hit a one-year high due to rising interest rates: S&P Global

Last month, the number of bankruptcy applications from U.S. companies surged to a one-year high, with S&P Global Market Intelligence stating that companies are feeling the weight of prolonged high interest rates.

In April, the number of new bankruptcy applications increased to 66 from the upwardly revised 61 in March. So far this year, companies in the consumer discretionary sector have outpaced other companies, with 8 new applications added in April.

S&P Global stated that the 210 bankruptcy applications recorded until April were slightly fewer than the 224 in the same period last year, but the pace of bankruptcies has accelerated since the beginning of 2024.

Clothing retailer Express (OTC: EXPRQ), 99 Cents Only Stores' parent company Number Holdings, and cloud computing company ConvergeOne Holdings each had over $1 billion in debt when they filed for bankruptcy protection in April.

Policy makers have not yet started lowering interest rates as the inflation rate significantly exceeds the target of 2%, according to S&P Global Market Intelligence. The possibility of financial distressed companies' hopes being dashed for some relief through a reduction in borrowing rates due to the FRB not lowering rates in early 2024 was mentioned. The benchmark interest rate is 5.25-5.5%.

According to the CME FedWatch tool, investors are currently expecting the Federal Open Market Committee to make the first rate cut in September. In April, stock prices (SP500)(VOO)(IVV) fell due to concerns that the FRB may not suggest a rate hike, but this idea was pushed back by FRB Chairman Jerome Powell after the April FRB meeting.

Bankruptcy specialist Epic announced last month that the number of commercial bankruptcy filings under Chapter 11 in the first quarter increased by 43% year-on-year to 1,894 cases. According to the same report, March saw a continued year-on-year increase in individual and commercial bankruptcy filings for the 20th consecutive month.

Vice President Michael Hunter of Epic AACER stated, "Factors contributing to this trend include rising costs of capital and interest rates, reduced discretionary consumer spending, increasing housing expenses, and the ongoing drawdown of excessive savings."