at the fastest clip in years, as soaring interest rates push their borrowing costs sharply higher, while slowing economic activity is causing sales to languish.
Indeed, not counting 2020, the number of US corporate failures in the first nine months of the year has been the highest since 2010.It’s a similar pattern in Australia. According to insolvency statistics from the Australian Securities and Investments Commission, 7942 companies entered administration or had a controller appointed in the 2023 financial year.
The combination of soaring inflation, rising cost of living pressures and higher borrowing costs has made consumers more circumspect about spending, and this has dented sales and profit margins. While both the US and Australia have witnessed a sharp rebound in corporate busts, the pattern of these failures is quite different.
The debts in the US have also been larger. Including Rite Aid, 18 US companies that have sought bankruptcy protection so far this year have had liabilities of more than $US1 billion. According to the RBA researchers, close to one-in-three large home builders are now in a negative cash flow situation, meaning their operating costs are higher than their revenues., smaller businesses have felt the sting of rising interest rates more than larger firms.That’s because indebted smaller firms usually have variable-rate loans. Even when they do have fixed-rate loans, these tend to be for smaller amounts and with shorter maturities.