The Fuse is Now Lit on Over $10 Trillion in Corporate Debt
We are now entering the time in which the true structural damage caused by the COVID-19 pandemic will be revealed.
Back in April when the economy was on lockdown, it became clear that many large businesses were in serious trouble – specifically restaurants, commercial real estate, and retail.
At that time, multiple large chains informed their lenders that they would NOT be paying rent in April. Here’s a headline from March 26:
Cheesecake Factory, Subway, other major retailers tell landlords they can’t pay April rent due to coronavirus
Source: Yahoo! Finance
To deal with this issue, banks and large financial institutions gave their borrowers 90-day forbearances on their debt payments… meaning those groups wouldn’t be required to make debt payments for 90 days.
Put another way, the banks told these businesses: “Don’t worry about making any debt payments for 90 days… think of this as a debt holiday.”
That was in April… exactly 90 days ago.
Buckle Up… This Could Get Messy
This means these same businesses will now have to start making debt payments again.
And if they have not yet truly recovered from the economic shutdown… we’re about to see a tsunami of defaults and bankruptcies, as well as layoffs and shutdowns.
This process has already begun. Simply take a look at a few recent headlines:
- Wells Fargo reportedly preparing to cut thousands of jobs
- United Airlines warns it could furlough 36,000 employees by Oct. 1 as demand remains low
- Storied apparel brand Brooks Brothers files for bankruptcy as it seeks a buyer and closes dozens of stores
- Muji files for bankruptcy
- GNC files for bankruptcy and will close up to 1,200 stores
- 24 Hour Fitness files for bankruptcy, closes more than 100 gyms
All told, US corporations have over $10 trillion in debt. And corporate leverage is WORSE today than it was in 2008.
It’s only going to get worse from here on out.
That said, there is a way to play this…
Smart investors are already taking steps to profit from the next major downturn in the markets.
Editor, Money & Crisis