Public company bankruptcy risk is rising in these unprecedented times. The pandemic is increasingly affecting global commerce and trade creditors are and likely will continue to scrutinize corporate debt with even more vigilance in the wake of COVID-19.
Recessions are bad enough, but COVID-19 is complicating the normal story. We have seen a sweeping trend in the lowering of FRISK® scores. Proprietary to CreditRiskMonitor, the FRISK® score is a metric that blends stock market capitalization and volatility, financial ratios (such as the ones leveraged in the Altman Z"-Score model), bond agency ratings from Fitch, Moody's and DBRS Morningstar, and subscriber crowdsourced sentiment data to deliver public company bankruptcy risk prediction that has proven to be 96% accurate.
Below, you will find some graphical views which illustrate the growing danger in not only specific global regions, but also several important multinational industries:
This is a working capital crisis.
Credit and procurement risk professionals need to have a clear understanding of where the biggest risks lie in their company’s A/R portfolios and supply chains. This economic downturn when combined with the highest historically public company debt on record, defaults at public companies are likely to drive $1.2 trillion in losses to bondholders. The losses could be much worse if COVID-19 leads to a deeper and more protracted downcycle. Worst of all, unsecured trade creditors are at the bottom of the creditor capital structure and will be fully wiped out before any bondholders are impacted in a bankruptcy.
An economic downturn appeared inevitable given the unprecedented length of the 11-year benign credit cycle and the surge of nonfinancial corporate debt relative to GDP.
This pandemic is providing a painful declaration: the “risk on” decade is done.
Now is your last chance to adjust. If you wait any longer, leaving you and your company exposed, you will recoup literal pennies on the dollar. CreditRiskMonitor is here to help you with getting that better process of monitoring public companies started.