United States: Bankruptcy and Insolvency Trends
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Experts and non-experts alike have predicted a wave of bankruptcies and insolvencies following the business disruption caused by Covid-19 in 2021. However, new filings around the world have been far below expectations following levels history of government support and easy access to cheap cash in the capital. markets. Despite this, we expect new commercial filings to pick up as support from governments around the world wanes.
Bankruptcies and insolvencies will rebound in 2022
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With the release of easily accessible vaccines, 2021 was shaping up to be the year when everything would change for the industries hardest hit by Covid. But the Omicron variant has shown us that Covid is unlikely to go away anytime soon. And if Covid continues on its current path, we expect the hospitality, travel, tourism, commercial real estate and in-person retail and event industries to experience a second wave. bankruptcy filings in 2022. While lenders have shown great flexibility in doing all they could to avoid foreclosures and defaults in 2021, this flexibility cannot last forever, and the cold reality is that things are unlikely to return to “normal” anytime soon.
U.S. inflation hit its highest level in nearly four decades in the fourth quarter of 2021. While the Federal Reserve initially rushed to declare inflationary pressures “transient,” there are good reason to believe that a stronger monetary response is to come. In December, a majority of the Federal Reserve’s Open Market Committee forecast rate increases of at least three-quarters of a percentage point in 2022. Although easy access to cheap liquidity is a defining feature of capital markets for years, as interest rates rise, defaults inevitably increase as companies struggle to borrow and refinance. The duration of the pandemic means that companies that were successful in expanding liquidity avenues in its early stages may encounter new maturity walls or other liquidity shortages. Given the inflationary environment and the Federal Reserve’s aggressive stance, these companies are likely to encounter less lenient credit markets this time around.
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