Highest number of bankruptcy filings in a year due to rising interest rates: S&P Global

Last month, the number of bankruptcy applications filed by US companies surged to the highest level in the past year, and S&P Global Market Intelligence stated that companies felt the weight of prolonged high interest rates.

The number of new bankruptcy applications in April was 66, up from 61 in March, which was revised upward. So far this year, companies in the consumer discretion sector have surpassed other companies, and 8 new applications were added in April.

S&P Global said that although the 210 bankruptcy filings recorded until April were slightly lower than 224 in the same period last year, the pace of bankruptcy has accelerated since the beginning of 2024.

The three companies, clothing retailer Express (OTC: EXPRQ), 99 Cent Only Stores parent company Number Holdings, and cloud computing company Converge One Holdings, had debts of 1 billion dollars or more when they filed for bankruptcy protection in April.

Policy makers have assessed that the inflation rate is well above the target of 2%, so the Fed has yet to start cutting interest rates. S&P Global Market Intelligence stated that since the FRB did not cut interest rates in early 2012, there is a high possibility that expectations of financially poor companies that some kind of relief can be obtained by lowering borrowing interest rates will be shattered. The base interest rate is 5.25-5.5%.

According to the CME FedWatch tool, investors currently expect the Federal Open Market Committee to cut interest rates for the first time in September. The April stock price (SP500) (VOO) (IVV) fell due to concerns that the Fed might suggest suspending interest rate hikes, but this idea was pushed back by Federal Reserve Chairman Jerome Powell after the April Fed meeting.

Bankruptcy expert Epic announced last month that the number of commercial bankruptcies based on Chapter 11 reached 1,894 in the first quarter, up 43% from the same period last year. According to the same report, in March, the number of individual bankruptcy and commercial bankruptcy applications recorded an increase compared to the same month last year for 20 consecutive months.

Michael Hunter, vice president of Epic AACER, stated in a statement that “factors contributing to this trend are rising capital costs and interest rates, a decrease in consumer discretionary spending, rising housing costs, and the continued collapse of excess savings.”