"Due to Interest Rates" US Unlisted and Small Business Bankruptcies Jump 250%

US 'Middle Market' Employing 50 Million Faces Turmoil
"Surface Looks Stable... Bankruptcies to Increase This Year"

Last year, the performance of private companies in the United States sharply declined. Bankruptcy filings among small businesses increased by more than 250% compared to the previous year.

Bloomberg reported this on the 8th (local time), citing investment firm Marblegate Asset Management and Rapid Ratings reports.

The two companies surveyed 1,200 private companies with revenues between $100 million and $750 million (approximately 131.4 billion to 985.1 billion KRW). These companies represent the "middle market," accounting for one-third of the U.S. private sector GDP and employing about 50 million Americans. Additionally, 2,230 publicly traded companies with revenues exceeding $750 million were also included in the survey.

According to the report, bankruptcy filings by U.S. companies in 2023 increased by more than 250% compared to the previous year. The majority of these occurred among smaller companies.

Between 2019 and 2022, the earnings before interest, taxes, depreciation, and amortization (EBITDA) of 1,200 middle-market private companies decreased by 24%. In contrast, the EBITDA of publicly traded companies soared by 18% during the same period. The EBITDA margin for middle-market private companies plummeted by 25%, whereas it declined by only 2% for publicly traded companies. The debt-to-EBITDA ratio surged by 62% for private companies but decreased by 14% for publicly traded companies.

Moreover, last year’s interest rate hikes also put pressure on middle-market private companies. Andrew Millgram, Chief Investment Officer at Marblegate, stated, "Many middle-market private companies have seen their interest expenses more than double compared to before the rate hikes, and some cannot afford this burden."

The report found that private companies are more vulnerable to demand declines, wage increases, and rising financing costs. Generally, private companies have weaker cost control compared to publicly traded companies and face intense market competition, leaving them little room to pass costs onto customers. While publicly traded companies posted solid results, instability among private companies could disrupt supply chains and increase costs.

Millgram, the Chief Investment Officer, assessed, "From the shore, the sea looks calm, but beneath the surface, the environment is very dangerous."

The U.S. online media Axios stated, "If you only look at publicly traded companies to assess the health of U.S. businesses, you are missing a big piece of the puzzle. A significant portion of U.S. economic activity is generated by private companies that do not disclose their performance, and what happens in private companies is different." They added, "On the surface, everything looks great, but unseen risks are accumulating," and warned, "There is a high likelihood of more defaults and bankruptcies in 2024."