Central bank policies in recent years have led to a boom in debt.
The trend concerns not only the government, but also companies and individuals (see the graph below from INSEE).
In size of GDP, French private debt reached 147% in mid-2022, compared to 117% in 2012.
Bankruptcy of a zombie
The increase in debt sooner or later leads to bankruptcies.
The Bed Bath & Beyond group, a favorite of speculators at the time of the lockdowns, has since returned the gains. It is approaching a price of $0.
US personal assistance programs during the lockdown era provided liquidity for speculation.
This led to a surge in the stock – based on rumors and advice circulating on the internet.
Bed Bath & Beyond, a chain of supermarkets selling linens, household appliances, and other home-related products, has struggled for years with soaring internet sales.
Explains one of the founders to wall street journal :
“If you had told me that my grandchildren were going to buy their clothes on the Internet, I would have replied that ‘people like to go out to shop, it’s a social activity.’ We didn’t realize quickly enough that the Internet was going to have such an impact on sales.”
In 2019, venture capitalists attempted to take over the company, firing the founders, and introducing changes to the way the company operates.
They also doubled the amount of debt on the balance sheet, from $1.5 billion to nearly $3 billion.
The transformation didn’t work, and because of the debt, she’s going bankrupt.
Sources say she could file for bankruptcy this week. Already, she missed a payment on the credits during the week.
Axios:
“Bed Bath & Beyond missed interest payments on bonds worth approximately $1 billion yesterday, and is now entering the 30-day period in which it can still avoid bankruptcy by making a payment.”
At its peak in 2013, the company had a valuation of $17 billion. It is now worth around $300 million, and may end the week at $0.
The company’s bonds, maturing in 2044, are currently worth 5.5 cents for bonds that were supposed to be worth $100, plus interest.
The little remaining value corresponds to the hope of a restructuring of the company, with the rescue of certain brands or operations.
The increase in debt, thanks to rates close to zero, lays the groundwork for bankruptcies in the future.
Rising interest rates increase the burden of debt, and should put the zombies in difficulty. (Follow us on tips on how to protect yourself during the coming crisis.)
Did you like this article ? Share it with your friends with the buttons below.
