Experts and non-experts alike predicted a wave of bankruptcies and insolvencies following the business disruption caused by Covid-19 in 2021. However, new filings globally were much lower than expected following historic levels of government support and easy access to cheap liquidity in the capital markets. Despite this, we expect new commercial filings to pick back up as government support around the world abates.

Bankruptcies and insolvencies will rebound in 2022


With the release of easily accessible vaccines, 2021 promised to be the year that everything turned around for industries that were hit hardest by Covid. But the Omicron variant has shown us that Covid is probably not going away anytime soon. And if Covid continues on its current path, we expect the hospitality, travel, tourism, commercial real estate, and in-person retail and event industries to experience a second wave of bankruptcy filings in 2022. While lenders showed great flexibility by doing whatever they could to avoid foreclosures and declarations of default in 2021, this flexibility cannot last forever, and the cold reality is that we are unlikely to see things return to "normal" any time soon.  

US inflation reached its highest level in nearly four decades in the fourth quarter of 2021. While the Federal Reserve was initially quick to declare inflationary pressure "transitory", there's good reason to think that a more forceful monetary response is forthcoming. In December, a majority of Federal Reserve's Open Market Committee projected at least three-quarter percentage point rate increases in 2022. While easy access to cheap liquidity has been a defining feature of the capital markets for years now, as interest rates rise, defaults will inevitably increase as businesses struggle to borrow and refinance. The pandemic's duration means those companies that managed to extend liquidity runways at its onset may encounter new maturity walls or other liquidity shortfalls. Given the inflationary environment and the Federal Reserve's aggressive posture, it's likely that such companies will encounter less forgiving credit markets this time around.

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