Dive Brief:

• Bankruptcy filings during 2021 and the first half of this year fell from a pandemic-induced surge to below the historical average, responding to record-low interest rates, federal stimulus and high debt forbearance, Cornerstone Research said.
• Seventy companies with assets of at least $100 million filed for bankruptcy during 2021 compared with 155 the previous year and an average 78 since 2005, Cornerstone Research said in a report. During the first half of this year, 20 large companies declared bankruptcy compared to 43 during the same period in 2021.
• Companies in most industries made fewer filings, including those groups hit hardest by COVID-19 such as retail, manufacturing, services, and oil and gas, Cornerstone Research said. Only four companies with assets of at least $1 billion filed for bankruptcy during the first half of this year compared with nine during the same period last year.

Dive Insight:

Bankruptcy filings may rebound in coming quarters, according to Nick Yavorsky, coauthor of the report and a principal at Cornerstone Research.

“There are some concerns that increased corporate debt levels, rising interest rates and inflation, and a potential global recession may contribute to an increase in bankruptcy filings,” Yavorsky said in a statement.

Corporate borrowing has surged since the start of the pandemic in early 2020. U.S. nonfinancial corporate debt outstanding rose to $12.2 trillion at the end of the first quarter from $10.3 trillion at the end of 2019 for an 18% gain, according to the St. Louis Federal Reserve.

Inflation has upended CFOs’ pricing strategies and crimped profits at many companies, rising 8.5% on an annual basis in July after hitting 9.1% in June, the highest level in four decades.

Federal Reserve policymakers, aiming to reduce inflation to their 2% target, have pushed up the benchmark interest rate this year more aggressively than any time since the 1980s.

Fed Chair Jerome Powell and other policymakers have acknowledged that further monetary tightening may increase unemployment and cloud the outlook for business. The economy has already shrunk, with gross domestic product falling from January through June, meeting the standard definition of a recession as two consecutive quarters of contraction.

Still, Fed officials in recent weeks have voiced support for pressing on with their fight against inflation by increasing the main interest rate 50 or 75 basis points at their Sept. 20-21 meeting.  A basis point is one hundredth of a percentage point.

Companies in finance, insurance and real estate have found the current economic conditions more challenging than their counterparts in other industries, Cornerstone Research said. Large companies in the three groups made 15 bankruptcy filings in 2021 — an increase from 10 in 2020 — and six during the first half of this year, or the most of any industry.

“Real estate investment remains challenged by struggles of traditional shopping centers and hotels as well as changes in consumer and worker behavior,” Cornerstone Research said. “Signs of a potential global recession and high inflation have increased concerns for cryptocurrency and financial firms.”