Bankruptcies drop as corporate profits, cash at record high
— -- Q: What have been some of the biggest corporate bankruptcies so far this year?
A: Consumers may be struggling financially, but companies are having a great year.
While unemployment remains stubbornly high and more consumers are facing serious financial hardship, corporate earnings and cash hordes continue to be at record highs.
Another sign of the great shape companies are in is the dearth of corporate bankruptcies. Thanks largely to the availability of low cost loans following the financial crisis in 2008-2010, companies have largely been able to finance their debts.
Meanwhile, rampant cost cutting has allowed companies to operate more leanly than they've been able to in years. As a result, corporate bankruptcies have become practically unheard of.
Just 1.9% of companies with the lowest credit ratings have defaulted over the past 12 months, says Standard & Poor's. That's well below the long-term average of 4.6%.
Yet, that's not to gloss over the fact there have been some rather high-profile bankruptcies this year. Among the largest this year, based on assets in billions, according to BankruptcyData.com:
• MF Global, 10/31/2011: $40.5
• AMR, 11/29/2011: $25.1
• Dynegy, 11/07/2011, $9.9
•PMI Group, 11/23/2011: $4.2
• NewPage, 9/7/2011: $3.5
• Integra Bank, 7/30/2011: $2.4
• General Maritime, 11/17/2011: $1.8
• Borders, 2/16/2011: $1.4
• TerreStar, 2/16/2011: $1.4
• Seahawk Drilling, 2/11/2011: $0.6
But investors should be careful to not assume that this period of low defaults will continue.
S&P is forecasting defaults to rise in light of the sluggish U.S. economy and troubles in Europe. S&P is expecting the 12-month trailing default rate to creep up to 3.1% by September 2012.
If that's the case, and S&P is correct, expect to see more high-profile bankruptcies in the coming months.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz
