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Just last week, ATM maker Diebold Nixdorf, Inc. (DBD) filed for chapter 11 bankruptcy, citing more than $2.66 billion in debt and inadequate cash flow to make any further interest payments on its loans and bonds.
They aren't the exception this year. Frighteningly, they are the norm.
Bankruptcies in the U.S. are rising at an alarming rate. So far in 2023, through the end of April, S&P data shows there have been 236 corporate bankruptcies recorded. That's a 216% increase over the number of bankruptcies recorded last year over the same period. A just released UBS study shows bankruptcies in the U.S. worth $10 million or more, year-to-date, had a rolling average of about 8 per week.
Obviously, this is going to have a knock-on effect on markets. But with bankruptcies exploding across the U.S. and companies shutting down altogether or attempting radical restructurings, one sector will suffer the consequences across the board more than any other - commercial real estate.
Companies defaulting on property leases, along with creditors selling office buildings and real estate assets into an already depressed commercial property market, is weighing heavily on an already underwater asset space.
With another wave of property downgrades, grossly marked-down sales, and abandoned buildings and sites on the way, we could even be looking at another bank crisis as the banks that hold those mortgages are forced to cope with the depreciation of those assets. And of course, all other sectors tied to commercial real estate will implode along with them.
There is, as always, a way to avoid the pain here, protect yourself, and make money targeting the sectors and stocks that are going to get hit hardest. And I have the perfect place for you to start.
Bankruptcy Isn't Just Hitting the Little Guys
Over the recent Mother's Day weekend, a period of 48 hours, seven companies filed bankruptcy. There hasn't been a cluster of bankruptcies like that since the darkest day of 2008.
And they weren't small businesses. All seven had liabilities they couldn't meet. Including four companies with over $1 billion in debt.
Vice, the once-hot broadcaster, was one of them. Even after a $450 million infusion from private equity giant TPG in 2017, which then valued the company at a whopping $5.7 billion, Vice's liabilities appeared to exceed $1 billion and sold itself for a measly $225 million to a handful of its creditors including Fortress Investment Group, Soros Fund Management, and Monroe Capital.
Envision Healthcare, backed by another investment management giant, KKR & Co., that raised $1 billion of fresh cash in 2022 still couldn't keep up with payments on its $10 billion in debt.
Venator Materials, a chemical producer, Kidde-Fenwal Inc, a fire protection firm, Cox Operating LLC, an oil producer, Athenex Inc. a biotech company, and Monitronics, a home security company all cited breaking point debt burdens and looming debt maturities as reasons for their bankruptcy filings.
And we haven't come close to entering a recession, yet.
The Death Spiral for Banks and Com…
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.