The New York University professor who developed one of the best-known formulas for predicting corporate insolvencies has a warning for U.S. credit investors: this year’s spate of “mega” bankruptcies is just getting started, Bloomberg News reported. More than 30 American companies with liabilities exceeding $1 billion have already filed for chapter 11 since the start of January, and that number is likely to top 60 by year-end after businesses piled on debt during the pandemic, according to Edward Altman, creator of the Z-score and professor emeritus at NYU’s Stern School of Business. Companies globally have sold a record $2.1 trillion of bonds this year, with nearly half coming from U.S. issuers, data compiled by Bloomberg show. While the stimulus-fueled rally in credit markets since March has helped borrowers stay afloat during the coronavirus crisis, Altman and others have warned that many companies are just delaying an inevitable reckoning. Fitch Ratings estimates worldwide corporate bond defaults this year could exceed levels reached during the global recession in 2009. “There was a huge buildup in corporate debt by the end of 2019 and I thought the market would gain some much needed de-leveraging with the Covid-19 crisis,” said Altman, who is also director of credit and debt market research at the NYU Salomon Center. “Now, [it] seems like companies again are exploiting what seems to be a crazy rebound.” As new waves of the coronavirus keep planes from flying and curb consumer spending, pressures on the global economy are increasing. The International Monetary Fund downgraded its outlook for the world economy in June, projecting a deeper recession and slower recovery than it previously anticipated. Man Group Plc, the world’s largest publicly listed hedge fund, has warned of the risk to bond buyers. The World Bank has also forecast that more than 90 percent of economies will experience contractions this year, higher than the rate seen at the height of the Great Depression.
