- Vice Media headlined a group of seven major companies that filed for bankruptcy in a recent 48-hour period.
- The filings have laid bare just how exposed highly indebted firms are in the wake of interest-rate hikes.
Think back to a faraway time when Vice Media was a darling of the journalism landscape. It sported a hefty $6 billion valuation, had a high-profile documentary series on HBO, and web traffic soared largely thanks to a certain polarizing president who'd just taken office. The year was 2017.
Fast-forward to the present, when Vice — saddled with liabilities of up to $1 billion — has filed for bankruptcy.
It's far from alone. Six other large companies threw in the towel within a recent 48-hour span, the most active such period for bankruptcies since 2008, according to Bloomberg data looking at companies with at least $5o million in liabilities.
The reason is relatively straightforward: the Federal Reserve's interest-rate hikes — designed to rein in inflation — have laid bare the market's weak hands. A credit crunch is here, and it's spreading quickly, crippling companies with large, cumbersome debt loads. For those looking to refinance, the ship has sailed.
A look at the other recent bankruptcies from recent days (handily compiled by Bloomberg) shows a consistent theme: exorbitant liabilities, mostly in the form of debt.
It's worth noting that a bankruptcy filing is not necessarily a death knell for a company. Bankruptcies tend to wipe out stockholders, and give companies an opportunity to restructure their debt and come out the other side with a healthier balance sheet. Still, an uptick in bankruptcy filings clearly demonstrates increasing economic stress.
Data from Moody's suggests that the bankruptcy trend is just getting underway. The ratings giant expects defaults for companies with speculative-grade debt to rise to 4.9% by March 2024, up from 2.9% at the end of the first quarter of 2023, and exceeding the long-term average of 4.1%.
S&P Global's reading of the situation isn't much more promising. It sees the default rate for junk-rated companies getting to 4% by year-end, more than double the 1.7% figure from the end of 2023, though still off the peaks of the post-COVID era.
A separate look at private bankruptcy is arguably even more troubling. As of early April, UBS found that private filings were outpacing even the early stages of COVID, when many firms went under. A four-week moving average of 7.8 registered in late February handily exceeded a comparable figure of 4.5 reached in June 2020, the firm found.
The chart below highlights this comparison between present conditions and early COVID-era times, with the caveat that the same trend isn't being seen in public filings:
On a specific industry basis, the financial sector is under duress following the collapse of Silicon Valley Bank, with multiple other institutions following suit in recent weeks. Retailers from Bed Bath & Beyond to David's Bridal have filed for bankruptcy in recent weeks. Envision Healthcare — a medical-staffing company backed by KKR — was one of the six firms to declare alongside Vice.
What this assorted list shows is that no industry is safe from balance-sheet bogeys. If a company got too aggressive loading up on debt during the low-interest-rate era, chances are it will soon be feeling the pain.