{"id":15638,"date":"2023-10-12T21:04:00","date_gmt":"2023-10-12T18:04:00","guid":{"rendered":"https:\/\/www.liberalglobe.com\/?p=15638"},"modified":"2023-10-12T21:04:00","modified_gmt":"2023-10-12T18:04:00","slug":"corporate-bankruptcies-will-increase-to-40-in-2024-compared-to-2023","status":"publish","type":"post","link":"https:\/\/www.liberalglobe.com\/?p=15638","title":{"rendered":"Corporate bankruptcies will increase to 40% in 2024 compared to 2023"},"content":{"rendered":"\n

Businesses in Europe, the Middle East and Africa will seek to earn their share of the refinancing, with amounts expected to exceed $500 billion in the first half of 2024.<\/p>\n\n\n\n

Many of them will not make it, although the expected peak in interest rates could bring some relief.<\/p>\n\n\n\n

Businesses facing rising debt costs after years of low interest rates will have to scramble to secure enough cash in the biggest race for corporate refinancing seen in years, as banks cut risk in the face of tighter capital rules.<\/p>\n\n\n\n

A new crisis begins in 2024<\/strong><\/p>\n\n\n\n

At least that appears to be the case as many weaker and smaller businesses will be looking for new private loans and debt restructuring just as government borrowing costs \u2013 which affect interest rates \u2013 are soaring globally.<\/p>\n\n\n\n

Failure to secure the cash they need, at prices they can afford, could lead to insolvency and layoffs.<\/p>\n\n\n\n

Interest rate hikes are becoming a bigger issue for companies, especially over-indebted businesses that have endured a prolonged period of low interest rates but are barely able to service their debt. Most likely, these businesses supported by government funding and not only from them, will cease to exist.<\/p>\n\n\n\n

The end of over-indebted businesses<\/strong><\/p>\n\n\n\n

Companies that depend on the support of governments, lenders and investors to stay afloat are headed for permanent closure. Initially and before their final pause, they will proceed with actions to restructure the repayment of the loans, offer reduced interest rates or other more relaxed terms and anything that could help the banks to avoid writing off loans.<\/p>\n\n\n\n

The signs of discomfort, however, from this situation, are already evident. According to the latest official figures from Britain’s Office for National Statistics, company bankruptcies in England and Wales (“Commentary – Company Insolvency Statistics April to June 2023<\/a>“) reached 2,308 in August, up 19% on the previous year.<\/p>\n\n\n\n

Begbies Traynor’s quarterly Red Flag Report on corporate distress (“Red Flag Alert Report – Q2 – Rising debt and inflation drives a surge in companies entering financial distress<\/a>“), covering the period April-June, found that 438,702 businesses across the UK were in distress \u2013 a figure up 8.5% on a year earlier. Notably, British discount retailer Wilko recently went into bankruptcy, leading to thousands of job cuts. While France’s sixth largest retailer Casino has just completed a debt restructuring to avoid bankruptcy.<\/p>\n\n\n\n

Banks and private equity firms are waiting to see if the situation would change for the better, but higher interest rates do not allow for optimism.<\/p>\n\n\n\n

A common scenario<\/strong><\/p>\n\n\n\n

The Bank of England has urged lenders not to underestimate the risk of corporate loan defaults and to avoid relying on models that measure risk across sectors rather than individual borrowers, after England and Wales had in the second quarter of this year the highest number of business bankruptcies since 2009.<\/p>\n\n\n\n

“It is indicative of the situation that a major bank is referring 100 small businesses a month to the restructuring team, which is a tenfold increase from 18 months ago,” said Paul Kirkbright, managing director in A&M’s restructuring department.<\/p>\n\n\n\n

That resilience is partly due to liquidity pumped into the economy during the pandemic, but year-end banks’ asset quality ratings \u2014 which measure a loan’s underlying strength \u2014 will be key, Kirkbright said.<\/p>\n\n\n\n

Bank of England data showed that gross lending in the first half of 2023 was 12% lower than the previous half. Trade body UK Finance described demand for borrowing among smaller businesses as “subdued” in its second-quarter survey of business finance published in mid-September (“Business Finance Review<\/a>“).<\/p>\n\n\n\n

The problematic refinancing<\/strong><\/p>\n\n\n\n

Tighter capital rules for banks that come into effect from 2025 are expected to limit the availability of support for companies that need fresh funding, industry experts said.<\/p>\n\n\n\n

It is certain that Basel III capital rules could affect small business lending.<\/p>\n\n\n\n

Some lenders have tightened credit terms and even shed some smaller business customers from their loan portfolios altogether as they review the profitability of these relationships. This mainly concerns the construction and retail sectors.<\/p>\n\n\n\n

Companies in need of cash are also likely to tap private equity firms, which are also becoming more discerning about the companies they back.<\/p>\n\n\n\n

Any major corporate bankruptcies are likely to have a contagion domino effect on other businesses.<\/p>\n","protected":false},"excerpt":{"rendered":"

Businesses in Europe, the Middle East and Africa will seek to earn their share of the refinancing, with amounts expected to exceed $500 billion…<\/p>\n","protected":false},"author":1,"featured_media":15640,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[620,946],"tags":[4439,2408,4749,4750,4703],"class_list":["post-15638","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-companies","tag-bankruptcies","tag-business-bankruptcy","tag-corporate-debt","tag-refinance","tag-smes"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/15638","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15638"}],"version-history":[{"count":1,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/15638\/revisions"}],"predecessor-version":[{"id":15641,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/15638\/revisions\/15641"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/media\/15640"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15638"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15638"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15638"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}