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United States: Two-speed business bankruptcies

United States: Two-speed  business bankruptcies

EXECUTIVE SUMMARY The COVID-19 pandemic has hit the United States (U.S.) very hard, inflicting a heavy human and economic toll. The abrupt halt in activity to contain the spread of the coronavirus from March onwards has resulted in a 5% contraction in the first quarter of 2020 year-on-year (YoY), the sharpest drop recorded since 2008, as well as a surge in the unemployment rate. While the economy has already been declared in recession1, the decline in GDP is expected to be even more severe in the second quarter. The gradual reopening, which began across the U.S. in May, should allow the economy to gradually recover. In its baseline scenario, Coface forecasts GDP to contract by 5.6% in 2020, before rebounding by 3.3% in 2021. Nevertheless, the resurgence of outbreaks in several states - including Texas, Florida and California - in June, which will slow or even reverse the reopening process, exposes this forecast to significant downside risks. The double economic shock of supply and demand has already resulted in a sharp drop in companies’ revenues, pressuring their cash flow. This situation should lead to an increase in the number of companies unable to meet their financial obligations, pushing them into bankruptcy. Nevertheless, similar to the European trend2, official data from the Administrative Office of the U.S. Courts for the first quarter, and the anticipated publications of the American Bankruptcy Institute (ABI) for April and May, suggest a decline in the total number of business bankruptcies since February. This trend is particularly due to Chapter 7 bankruptcy filings (see Box).

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