New reports suggest that trillions in corporate debt may lead to another recession. According to reports, the massive figures that are owed in corporate debt has led expert to conclude that the United States may be headed towards another recession. It’s reported that 2017 recorded the highest number of bankruptcy filings since the last recession.
Unfortunately, experts have predicted that many more corporations will follow shortly. At the end of 2017, S&P Global Market Intelligence made public a list of retail stores that are on the top of the bankruptcy watch list including Sears Holdings, Sun Pacific Holding Corporation, Vince Holding Corporation, Bebe Stores Incorporation, Destination Maternity Corporation., The Bon-Ton Stores, and Tailored Brands Incorporation.
Who Might Be In Trouble?
Another group of companies that we should be keeping a close eye on include; J. Crew, GNC Holdings, Neiman Marcus, David’s Bridal, and Nine West. Some of the companies mentioned above have been closely watched over a, and reports suggest that Bon-Ton Stores Inc. Already filed a chapter 11 bankruptcy petition on February 4, 2018.
Nine West Holdings Incorporation was reported to be in a discussion with its creditors last month to negotiate a prearranged bankruptcy filing as a result of its inability to settle debts worth $1.5 billion. The sitting involving the two parties was to discuss and agree on a deal before filing for a bankruptcy protection.
Reports also have it that GNC, a vitamin retailer that is mall-based is prepping to file for a bankruptcy protection as it is unable to settle its debts that amount to about $1.4 billion. Another company in the same both as GNC is Sears Holding Corporation the company which operates Sears and Kmart stores recently announced the closing of some of its shops following the downgraded ratings of major shareholders like S&P Global, Fitch, and Moody’s.
Many other stores are closing their shops with the hope that it will help them prevent bankruptcy filings in the future. However, not all stores are closing down due to their impecuniosity, as reports state that stores like Sam’s Club, Michael Kors, Ann Taylor, Macy’s, and Loft, are closing down only underperforming stores to open in new locations with the possibility increased sales. For instance, Gap Incorporation recently released a public statement that it will close down 200 of its Gap and Banana Republic stores, as it plans to launch successful brands at 270 locations in Old Navy and Athleta.
When to Buy
The best time to purchase things is when the demand for such items is low and supply is high. These firms also believe that the right time to sell things is when supply is limited, but demand is high and unlimited. Currently, everyone is purchasing equities with the hope to sell it when the price is inflated as a result of low supply and high demand. Many firms are now heavily indebted, thus a leading indicator that a recession is around the corner.
The corporate sector heavily indebted to the latest business cycle and this debt is rapidly increasing on a daily basis. Other reports have revealed that the rate of nonfinancial corporate debt is on a high level compared to nominal GDP. It’s believed that the only reason the economy is yet to crash because of the favorable monetary policies of the Federal Reserve. However, there’s no telling how long the policies of the Federal Reserve would be able to hold the economy if corporation continues to pile up their debts.
Toys R Us Fall Out
The fall of Toys R Us is deemed to be one of many unfortunate downturns that are predicted to occur if the debt keeps pilling. It’s estimated that many other retailers may follow the toy giant sooner rather than later. While reports have listed many different reasons for the fall of Toys R Us, it’s believed that the United States company was pushed out of business by its inability to settle its debts. According to reports, the company’s board of directors unanimously agreed to put Toys R Us up for sale in 2004 due to continuous fall of profit and flat sale over the years.
The company was purchased by a private equity firm known as Bain Capital and KKR as well as Vornado – a real estate investment firm for $6.6 billion. It’s believed that the downturn started immediately after the sale as the firms were only able to put together 20 percent of the total cost and borrowed the other 80 percent. Toys R Us became a private firm with a debt that was calculated to exceed $5 billion. Many experts argue that another contributing factor to the fall of the toy giant is because amazon.com rose to power and its sales quadrupled during the next few years after the purchase of Toys R Us.
Amazon reportedly recorded a sale of about $34 billion within five years thus the emergence of a new competitor for the toy retailer. To beat the competition, Toys R Us would have to invest quality time and resources into improving its stores and website. Meanwhile, the company was unable to do this as it has too much debt to pay back as a result of its leveraged buyout deals. The company then reportedly hired the services of legal practitioners to push the date of its next loan payment off, thereby making clients to conclude that Toys R Us is about to go bankrupt.
After word got out, the toy retailer lost lots of suppliers with some requesting upfront payment in cash for good before shipping vessels. Others went as far as canceling vessels that were already set to ship. Experts and fans believe that all these led Toys R Us to file for Chapter 11 bankruptcy in September. However, the company is not the first to go bankrupt as many other equity-backed retailers such as Gymboree, Payless, The Limited, and Sports Authority have also been declared bankrupt.
We will be safe for a few more months, but come 2019, all bets are off…