|Businesses beware: It’s about to get ugly.
WeWork, the real-estate company that cosplayed as a tech startup, filed for Chapter 11 bankruptcy this week. It’s not exactly a shocking resolution for WeWork, which first showed signs of its demise during a disastrous IPO attempt in 2019.
But one Wall Street veteran believes WeWork will be the first of many companies to succumb to a similar fate. In a recent note, New Constructs CEO David Trainer said hundreds of “zombie companies” — unprofitable businesses holding significant debt and burning through cash — will also file for bankruptcy, writes Insider’s Jennifer Sor.
Trainer’s concerns aren’t unfounded. More US companies filed for bankruptcy in the first eight months of the year than the total number of bankruptcy filings in 2021 and 2022, according to data from S&P Global.
Defaults on corporate debt have also been on the rise globally, per another S&P Global report. Bank of America estimates we’ll see $46 billion in distressed debt next year.
Rising interest rates have been a key culprit.
After years of a near-zero rate environment, getting money became a lot more expensive. That type of change throws quite a wrench in your plans if your business strategy amounts to burning cash while you figure things out.