Bankruptcies: The Next Wave

Posted by Adam Lindhem
By Ben Steverman

Recent earnings reports show companies are slashing costs, paying off debt, and stockpiling cash. Meanwhile, economists see signs the economy is slowly improving.

Unfortunately, none of that could prevent a wave of bankruptcies by firms walloped by the recession and credit crisis.

That's the prediction of experts on bankruptcy, who say too many firms are loaded up with too much debt to survive the next year without defaulting on their debt obligations and filing for bankruptcy protection.

Standard & Poor's, for example, predicts the default rate for speculative-grade (i.e., junk-rated) companies to hit an all-time high of 14.3%—but not until the first quarter of 2010. The default rate was 9.25% last month, and just 0.79% back in November 2007. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

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