US Bankruptcies Rise

With the days of easy credit over and as economic slowdown sets in the number of corporate bankruptcies in the US is increasing.

Frontier Airlines Holdings Inc filled for bankruptcy on April 11th following three other airlines.

Lynn LoPucki a professor studying bankruptcies at the University of California said that due the increased levels of distressed corporate, it is likely that failures will continue in vast numbers.

A single company bankruptcy is not just a sign of a weak economy but also have a ripple economic effect as it causes disruption in resources.

According to a Merrill Lynch & Co. distressed corporate bonds increased from $4.4 billion in March 2007 to $206 billion this April.

Due to the fact that credit was easily available companies that would have failed previously were kept going for a while longer.

Early bankruptcy filling were inextricably associated with the sub prime mortgage crisis as the declining housing industry hit homebuilder Tousa Inc. of Hollywood, Florida, and the moving company Sirva Inc.

Due to the current economic climate even if a company’s performance is wavering, the banks cannot force or even coerce them into bankruptcy, as they have no covenants.

This means that when the company does eventually file for bankruptcy they are likely to have even more debt and a lower valuation.

Story link: US Bankruptcies Rise