Long-feared surge in bankruptcies is now under way

[Ah Xoc Kin]

Oct 9th 2008

The long-feared surge in bankruptcies in America is now under way

Even before September’s record-breaking financial-sector bankruptcy of Lehman Brothers, with assets of well over $600 billion, and the technical bankruptcy of Washington Mutual en route to its acquisition by JPMorgan Chase, there had already been more bankruptcies this year than in 2007.

By May corporate borrowers had defaulted on 28 high-yield bonds (formerly and perhaps again to be known as “junk”), compared with 21 such defaults in the whole of 2007, according to a recent report by the corporate-renewal group at Bain & Company, a consultancy.

Even before the recent intensification of the financial crisis, which has made it harder and costlier for even the best-run companies to get credit, Bain forecasts that 4.8-5.9% of American high-yield bond issuers would default this year, up from 0.9% last year, with the number of large bankruptcies (companies with assets of over $100m) rising to 50-75, from 13 in 2007.

The face value of distressed American corporate high-yield debt is now $328 billion, up from $59 billion in January.



http://www.economist.com/business/displaystory.cfm?story_id=12380997