A recent report reveals that private U.S. companies are experiencing a significant decline in earnings and profit margins following the Federal Reserve’s interest rate hikes, leading to escalated financing costs and an increasing number of business failures.
While larger corporations have, to a large extent, remained shielded from this economic strain, they often rely on mid-sized private firms as suppliers.
The potential collapse of these smaller businesses poses a threat to supply chains and could elevate costs for larger enterprises, as highlighted in the report by Marblegate Asset Management and Rapid Ratings on Monday.
The repercussions of this economic downturn in private companies may extend to investors in one of the rapidly growing segments of debt markets: private credit lenders, BNN Bloomberg reported.
These fund managers oversee approximately US$1.6 trillion in direct loans and other forms of private credit.
As smaller companies grapple with financial challenges, professionals specializing in debt restructuring and business turnaround may find new opportunities, especially as the pressure on profits leads to an increasing number of business failures.
The impact on private companies is evident in the surge of bankruptcy filings, which rose by over 250 per cent in 2023 compared to the previous year, primarily driven by smaller enterprises, according to the findings presented in the report.
Written by B.C. Begley
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B.C. Begley 