Corporate bankruptcies and defaults surging

6.26.23 - Corporate bankruptcies and defaults surging

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Corporate bankruptcies and defaults are surging - here's why -CNBC

The Federal Reserve plans to keep hiking interest rates to stem inflation, which means an increase in corporate default rates is likely in coming months.

The corporate default rate rose in May, a sign that U.S. companies are grappling with higher interest rates that make it more expensive to refinance debt as well as an uncertain economic outlook.

There have been 41 defaults in the U.S. and one in Canada so far this year, the most in any region globally and more than double the same period in 2022, according to Moody's Investors Service.

Earlier this week, Fed Chairman Jerome Powell said to expect more interest rate increases this year, albeit at a slower rate, until more progress is made on lowering inflation.

Bankers and analysts say high interest rates are the biggest culprit of distress. Companies that are either in need of more liquidity or those that already have hefty debt loads in need of refinancing are faced with a high cost of new debt.