Charts of the Day: Surging US Bankruptcies!

A Bloomberg report says that its Bloomberg Bankruptcy Index has reached a six year high!

Energy companies made up 80 percent of corporate bankruptcy cases last year, according to data compiled by Bloomberg, tracking companies with more than $500 million of debt. In the past 12 months, a total of 56 companies filed for Chapter 11 bankruptcy with a combined $146 billion in debt, the data show.

Bankruptcies have been spreading…

While a May report from Moody’s Investors Service says that energy remains as one of the most distressed industries, with a 10.3 percent default rate expected in the next 12 months, Moody’s says trouble is spilling over to sectors including metals and mining, durable consumer goods and retailers.

“The wave is already here,” says Tim Coleman, head of PJT Partners’ restructuring and special situation group. “Many risky debt deals have been done as people chased yield -- and it’s a matter of time before many of them blow up.”

Meanwhile, the American Bankruptcy Institute reported that while 1Q 2016 bankruptcies were down 5%, total commercial bankruptcies soared by 24!

However, total commercial filings for the first three months of 2016 were 9,208, representing a 24 percent increase from the 7,438 filings during the same period in 2015. Total commercial chapter 11 filings also increased 9 percent from 1,300 last year to 1,419 during the first three months of 2016.

“After 22 consecutive declines in total quarterly filings, the drop-off is tapering as more struggling businesses and households turn to the financial relief of bankruptcy,” said ABI Executive Director Samuel J. Gerdano. “Distress in the energy and retail sectors is represented in the increasing total of business filings, and we are also seeing a rise in individual chapter 11 filings.”

For the month of March 2016, the 78,332 total recorded filings represented an increase of 21 percent from the 64,686 filings registered in February 2016, but they were down 4 percent from the 81,693 filings recorded in March 2015. The 74,981 total noncommercial filings in March 2016 represented a 22 percent increase over the February 2016 total of 61,651, but a 5 percent drop from the 79,016 noncommercial filings registered in March 2015. Total commercial filings in March 2016 increased 10 percent to 3,351 over the 3,035 filings recorded in March 2015, and increased 25 percent from the 2,677 commercial filings registered in March 2015.

To corroborate on the current trend of rising bankruptcies, credit rating agency the S&P continues to downgrade more firms than it upgrades.

Here is the S&P at the Forbes (April 2016)

Corporate downgrades continued last month, with S&P cutting ratings on 44 U.S. speculative-grade debt issuers while upgrading only 15, the ratings agency said today.

While the recent downgrade activity remains ‘elevated,’ it’s a clear improvement from February, when 82 non-investment grade issuers were downgraded.

Of course, oil and gas was the most downgraded sector in March, as many companies in that market segment struggle with decreased demand, continued low oil prices, and reduced borrowing capacity. Indeed, oil & gas companies account for roughly 45% of all speculative-grade downgrades in the first quarter of 2016, S&P says.

Of the 44 downgrades in March, the most commonly cited reasons for the rating actions included deteriorating (or expected declines in) operating performance (17); concerns about a company’s liquidity or increased potential for default (15); or merger, acquisition, or asset sales (two), according to S&P.

Yes near record high stocks as downgrades, and bankruptcies soar!

Any wonder why some notable billionaires as George Soros has bet on a market crash???

If the US suffers from an economic convulsion, do you think that such would not spread elsewhere?