Unabated Anxiety... Domino Effect of US Corporate Bankruptcies Amid High Interest Rates

Sharp Increase in Bankruptcy Filings in August

Bloomberg reported on the 5th (local time) that the number of bankruptcies among U.S. companies has not stopped increasing for over a year due to the impact of high interest rates.

According to U.S. financial information firm Epic, the number of U.S. corporate bankruptcies in August rose 17% compared to the previous month, marking 13 consecutive months of growth.

During the COVID-19 pandemic, massive liquidity supply and low interest rates helped ease corporate bankruptcies, but since last year's shift to aggressive tightening, the prolonged high interest rate environment and credit tightening by commercial banks have continued to drive an increase in bankruptcy filings.

In particular, the number of filings under Chapter 11, a bankruptcy protection system under U.S. federal bankruptcy law, surged 54% compared to the same month last year. Chapter 11 is a system that helps companies facing bankruptcy avoid immediate liquidation by allowing them to continue operations and restructure under the supervision of the bankruptcy court.

Bloomberg stated, "Due to the backlash from interest rate hikes and credit crunch, the number of corporate bankruptcy protection filings is surging," and predicted that "the wave of corporate bankruptcies, which surged simultaneously with the U.S. regional banking crisis triggered by the Silicon Valley Bank (SVB) bankruptcy in March, will remain at a high level for the time being."

[Image source=Reuters Yonhap News]

According to Bloomberg's own tally, at least six bankruptcy filings involving amounts of $50 million (approximately 66.7 billion KRW) or more have been submitted so far this month. In August, at least 23 large-scale bankruptcy filings were received.

Ed Flynn, a bankruptcy statistics researcher at global market research firm ABI, explained, "An abnormally large number of major bankruptcies are occurring," adding, "Most of these bankruptcies appear to stem from liquidity crises caused by high interest rates."