Corporate Bankruptcies Are Set to Reach a Decade-Long High

A different kind of debt crisis

First, American companies were hit hard by a wave of layoffs. Bankruptcy will happen this time.

New data shows that 2023 is likely to see the largest number of Chapter 11 filings in over a decade, as the severe impact of economic troubles hits financially weakened companies. While many companies survive bankruptcies, the increase in the number of incidents is a true reflection of the enormous stress companies are currently facing.

By April, more than 230 American companies had filed for bankruptcy. This is the highest level in the first four months of the year since 2010, according to S&P Global. This figure includes public companies with at least $2 million in assets or liabilities and private companies with $10 million in listed liabilities, which are not included in this figure. Recent examples include Vice Media, Cox Operating, and KKR-backed Envision Healthcare. (On a slightly optimistic note, researchers at investment bank Jefferies tracked 1,440 of his bankruptcies of all sizes during the same period. under That trend line goes back to 2013. )

Condemning the slowing economy, soaring interest rates and persistent inflation, All of this has plagued companies with heavy debt burdens and challenged their business strategies. (Some of the more vulnerable companies are those that have been bought by private equity firms and have become indebted.) Lifelines like minimum interest rates and pandemic-related government aid have all but disappeared.

A year ago, struggling companies began laying off workers to cut costs. But now they are “running out of time,” S&P analysts wrote in a research note on Wednesday. “Businesses that were in trouble long before the end of the pandemic and ultra-low interest rates are now reaching breaking point.”

Consumer discretionary firms have become the busiest filers, according to S&P. This segment includes retailers and restaurants, which are typically among the most sensitive to tough economic times. Some of the most notable Chapter 11 lawsuits in this area include Bed Bath & Beyond and David’s Bridal.

Closely behind are financial institutions, healthcare companies, and industrial producers who saw a rise in the number of cases during the regional banking crisis that began with the failure of the Silicon Valley bank.

Expect more applications later this year as banks cut lending Vanguard chief global economist Joe Davis cautioned investors this week. Financial conditions are expected to remain tight, partly due to the Fed’s long-running campaign to raise interest rates, and companies may be forced to cut costs and staff further, or, if that fails, apply to Chapter 11. have a nature.

Analysts also warn that a quick resolution may not be reached. compromise on the debt ceiling It could push more companies to the brink.

In a perhaps worst-case economic scenario, Bank of America credit strategists predicted last week that corporate bond default rates could rise. Zoom up to about 15%. But they project a more likely peak as low as 8%, which would still amount to nearly $1 trillion worth of debt defaults.

what is going on here

Montana bans TikTok. The state is the first to impose such a drastic ban on a Chinese-owned video app, and the purpose is to “protect the personal data and sensitive personal information of Montana residents from China.” said it was. Montana’s move is likely to be challenged in court, and experts say it will be difficult to enforce, but it comes as state and federal officials consider how to deal with TikTok.

Deutsche Bank to pay $75 million to victims of Jeffrey Epstein If a federal judge approves the payment, it would settle a proposed class action lawsuit accusing German financiers of aiding the sex trafficking of young women by disgraced financiers. Victims have also sued JPMorgan Chase, accusing the bank of ignoring warning signs about Epstein’s wrongdoing.

Elizabeth Holmes must appear in prison by May 30th. Federal Court of Appeal Denied Theranos Founder’s Efforts He’s staying home pending her appeal against her fraud conviction. Meanwhile, a lower court ordered Holmes and former deputy commander Sunny Balwani to repay $452 million to Theranos investors, including $125 million to media mogul Rupert Murdoch. .

Forecasters say the planet will probably hit record temperatures in the next five years. According to the World Meteorological Organization, anthropogenic warming and the El Niño phenomenon could push global temperatures 1.5 degrees above the 19th century average. As governments repeatedly delay efforts to slow global warming, scientists say this will have implications for health, food security and more.

Meta is reportedly facing record fines for mishandling European consumer data. Irish data regulator to announce penalty Next week we will discuss how the company transferred customer information to the US. The fine is likely to exceed the €746 million Amazon paid in 2021.

Meta Reveals AI

Google and OpenAI, creators of ChatGPT, backed by Microsoft, are getting almost all the attention in the race to dominate artificial intelligence. But don’t overlook the AI ​​ecosystem that Meta is building.

The social media giant, which has invested in technology for nearly a decade, is taking a radically different and more controversial approach, write The Times’ Cade Metz and Mike Isaac.

Meta powers open source. The tech company wants third parties to use its technology to develop their own AI-powered platforms, betting that broader access will accelerate development and spread its influence. increase. “Open platforms win,” says Yann Lucan, chief AI scientist at Meta.

Critics such as Google and OpenAI argue that the approach is dangerous. The rapid rise of AI raises economic and economic concerns. Political Consequences of granting public access to powerful technology that is still in its infancy. Within days of his AI release on Meta, the system was leaked to 4chan, an online message board known for spreading false and misleading information.

LeCun argues that consumers and governments will not adopt AI until it becomes more widespread. Disinformation can be managed, he added.

Other AI News:

• A dozen tech companies see a potential boom in developing AI tools that can detect fakes and plagiarism generated by AI.

• The G7 Summit, which begins in Hiroshima, Japan on Saturday, will include discussions on how to regulate AI.

Clash of Private Equity Giants

In a typical year, a $2.7 billion acquisition of a German software company wouldn’t attract much attention. But a sale effort by Software AG, a company that makes business analytics software, sparked an unusual feud between the two investment giants, causing an uproar among some shareholders.

Silverlake launched a tender offer for Software AG shares on Wednesday. and €32 ($34.60) per share. The technology-focused private equity firm is backed by Software AG’s management and largest shareholder, who has agreed to sell his 25% stake in the company to Silver Lake.

Combined with the 5% stake the company acquired on the public market, Silverlake will own about 30% of the German company. For the offer to succeed, the company would need to acquire at least 50% plus one share of Software AG’s outstanding shares.

Bain Capital is disputing the transaction. The private equity giant has launched a series of unsolicited tender offers through its portfolio company Rocket Software, which it hopes will merge with Software AG, purporting to be better for shareholders of German companies. (With this campaign, Silverlake increased its tender offer price from €30 per share.) Bain Issued €34 per shareand may rise further.

It’s rare to see a private equity firm, which generally seeks amicable deals, pursue a unilateral takeover offer opposed by management. A representative for Rocket told his DealBook, “We believe this proposal is a very good one for both companies and look forward to engaging with management.”

Other investors are pushing back against Silverlake’s proposal. They say it underestimates Software AG.in a German company annual investor conference There were also voices against the bid on Wednesday. “Working with Silver Lake must not culminate in the bud of a competing takeover offer to the detriment of all other shareholders,” said Co-op, about 5% of Software AG. A representative of the investor who owns said.

Still, Bain faces its own set of challenges. His proposal is non-binding, subject to due diligence that management opposes, and it’s unclear whether Rocket will be able to secure the necessary funding. Bain also stated a minimum acceptance rate for the offer. would be 40 percenta level that is potentially difficult to achieve given Silverlake’s stake.

But pressure from shareholders for a better offer — Software AG’s share price was trading above €34 on Thursday — could lead to an upheaval in the contest ahead of the June 14 deadline for Silverlake’s takeover offer.

PGA Tour in trouble

The extent of the investigation into alleged antitrust violations by the US authorities against the PGA Tour has become clear. Major tournament winners, including Phil Mickelson, Bryson DeChambeau and Sergio Garcia, were interviewed as officials investigated possible collusion and labor market manipulation at America’s top golf tournament.

The relationship between the organizers of top-class golf competitions is a major focus. The PGA TOUR runs the tournaments that make up the majority of golfers’ schedules, but not the most prestigious tournaments. Masters run by Augusta National Golf Club. and the PGA Championship, run by the PGA of America.

Executives from these organizers, like the PGA Tour, have seats on the steering committees behind golf’s ranking system.

Prosecutors may argue that the setup harms consumers. The Justice Department needs to prove that the PGA Tour is competing with tournament organizers, a practice privately ridiculed by golf officials. (They’re jockeying for TV rights and sponsorships.) Prosecutors could also argue that the ranking system was used to exclude certain players, meaning fans would miss games. There is also

The PGA Tour declined to comment to The Times, but previously denied any wrongdoing.

This inquiry came at a time when the professional golf industry grappled with the rise of LIV golf. The Saudi-backed league has offered huge prize money to lure top players like Mickelson and Garcia. The PGA Tour has taken a tough line to suspend players who leave rival tournaments.

speed reading

Information of sale

• Pfizer executives have warned that crackdowns on U.S. mergers are intensifying. It may become a “disaster”. For the pharmaceutical industry’s efforts to develop new drugs. (FT)

• Fast fashion giant Shein has reportedly raised $2 billion in new funding. Reduce valuation by about a third, to $66 billion. (WSJ)

policy

• The bank is reportedly considering plans to replenish the government’s federal deposit insurance fund use government bonds instead of cash, transfers the paper losses of those securities to the Federal Deposit Insurance Corporation. (WSJ)

• Publisher Penguin Random House sued the Florida school district The banning of several of its books is the latest example of the company’s resistance to what supporters describe as “anti-awakening.” (FT)

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