As measured by employment and gross domestic product, the recession brought on by the COVID-19 pandemic has been the deepest since the Great Depression, according to a Bloomberg News commentary. Going by Bloomberg’s Corporate Bankruptcy Index, though, it’s a standard-issue downturn, nowhere near as bad as the recession of just over a decade ago. This index, which was heavily affected by a few large bankruptcies in 2008 and 2009 (Lehman Brothers, Washington Mutual, General Motors, CIT Group), is definitely not the only way to measure bankruptcy activity. Edward Altman, an emeritus professor at New York University’s Stern School of Business, favors counting the number of bankruptcies with liabilities of more than $1 billion, of which he says there have been 50 so far this year, breaking 2009’s full-year record of 49. Then again, the total number of business bankruptcies is actually down, according to the commentary. Federal courts data show business filings in the second quarter of this year (April through June) to be the lowest in more than a decade and nearly the lowest in four decades. Only the first two quarters after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect, raising the bar for both business and consumer filings, saw fewer. Trillions of dollars of aid from Congress and the Federal Reserve have clearly played a role here, as has the mostly exuberant state of financial markets (which is not unrelated to all that aid from the government), according to the commentary. U.S. corporate bond issuance through the end of August totaled $1.73 trillion, according to the Securities Industry and Financial Markets Association, breaking the full-year record of $1.67 trillion set in 2017. During the last recession, bond issuance fell 38 percent from 2007 to 2008. This year to date, it’s up 83 percent. Although that channel of financing has not been available to smaller businesses, many of them have been able to avail themselves of the government’s Paycheck Protection Program. Personal bankruptcies are down, too, with chapter 7 and chapter 13 filings through August of this year 27 percent lower than over the same period in 2019. On the whole, those with family incomes of $40,000 or less surveyed by the Federal Reserve reported being in slightly better financial shape in July than before the pandemic, according to the commentary. With additional federal help looking less and less likely before November’s election, and the economy showing some signs of stalling from its rapid early-summer rebound, these positive trends won’t necessarily persist. “Once the government and Fed stimuli end, I feel there will be a spike in all bankruptcies,” Altman predicts.
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
