Finance News

Higher interest rates send business bankruptcies soaring



Business failures spiked in August as the number of companies seeking court protection from their creditors jumped in response to rising interest rates and pockets of economic headwinds.

The number of commercial bankruptcies increased nearly 17% in August compared to July, according to data company Epiq Bankruptcy. That marks the 13th consecutive month that total bankruptcies, including families and individuals, have logged year-over-year increases, according to the American Bankruptcy Institute.

By one measure — the number of Chapter 11 petitions filed — bankruptcies climbed by 54% year-over-year in August. That number is likely inflated by duplicate filings because large firms typically file several petitions to cover all their various units.

Even with that qualification, however, the jump in business failures, especially for big firms, is clear, said Ed Flynn, a consultant with ABI who studies bankruptcy statistics.

“I think a lot of it is interest rates,” said Flynn. “There have been an unusually large number of large cases.”

US bankruptcy courts recorded six new, large filings involving assets of at least $50 million last week alone, according to data compiled by Bloomberg. At least 23 big filings happened last month.

Over the past year, as the Federal Reserve increased interest rates in order to bring down inflation, companies have struggled to repay lower-cost debt as it matures. That has pushed some over the edge, including Voyager Aviation Holdings, an aircraft leasing company that filed bankruptcy July 27, blaming, in part, rising rates.



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