Bankruptcy wave threatens US economy

Washington [US], May 18: Large corporations continuously filed for bankruptcy in the US, while analysts said that it was just a "prelude".
Reuters news agency on May 17 reported that Vice Media Group (headquartered in New York state, USA) has just been approved by the court to borrow $ 5 million (VND 117.2 billion) to finance the bankruptcy process. Vice Media said the money will be used to pay collaborators and prepare for the sale of the corporation. The court is considering lending Vice Media an additional $ 5 million in June. The loan also helps the group to release $ 20 million in the frozen bank account.
Vice Media filed for bankruptcy on May 15 and was among seven major companies filing for bankruptcy in the US within 48 hours. This is just the beginning, experts say, reflecting how risky companies are to high debt when interest rates rise.
Revealing weak businesses
According to Insider, Vice Media was once the "star" of the media industry with a value of nearly 6 billion USD, had popular documentaries on HBO and web traffic skyrocketed in 2017. However, The group now has a debt of up to 1 billion USD and was forced to file for bankruptcy due to many management and business problems. Bloomberg's statistics on May 15 for businesses with $50 million or more in debt showed that six other businesses also filed for bankruptcy within 48 hours, the most rapid period of bankruptcy since 2008.
The reason is quite clear because the US Federal Reserve (Fed) raised interest rates to control inflation, making weak businesses in the market exposed. Credit tightening is spreading fast and crippling companies with huge debts piled up. The Fed started aggressively raising interest rates from March 2022, and raised the basic interest rate to 5 - 5.25% at the meeting on May 3 of the Federal Open Market Committee.
The trend continues
Recent bankruptcies show that a common problem is the large debts that corporations take on. Filing for bankruptcy isn't necessarily the death knell for a company, but tends to provide an opportunity for companies to restructure their debt and come up with a better balance sheet. However, the increase in bankruptcy filings indicates growing economic stress.
Data from Moody's, a credit rating agency headquartered in the US, shows that the bankruptcy trend is just beginning. The default rate for companies with speculative-grade debt is expected to rise to 4.9% by March 2024, from 2.9% at the end of the first quarter of this year and above the long-term average of 4. ,first%. Another US group's forecast, S&P Global, also shows the default rate of companies with low credit ratings by the end of this year at 4%, more than doubling the 1.7% figure at the end of the year. year 2022.
On an industry-specific basis, the financial sector is struggling after the collapse of Silicon Valley Bank on March 10, leading to several other banks going bankrupt. However, retailers such as Bed Bath & Beyond and David's Bridal have also filed for bankruptcy in the past few weeks. Besides Vice Media, 6 other companies filed for bankruptcy within 48 hours as of May 15, including Envision Healthcare corporations specializing in medical personnel, Monitronics International (home security), Venator Materials (chemical production). , Cox Operating (oil production), Kiddle-Fenwal (fireproof) and Athenex (biotechnology). According to analysts, no sector is safe, so the more debt a company accumulates in a period of low interest rates, the more likely it is to be affected.
Source: Thanh Nien Newspaper