KEY POINTS

  • S&P reported 424 companies have collapsed so far this year
  • Consumer-focused companies have been especially vulnerable
  • The industrials and energy sector were also badly hit

Corporate bankruptcies in the U.S. may reach a 10-year high in 2020 as the COVID-19 pandemic damages a wide variety of companies.

S&P Global Market Intelligence reported 424 companies collapsed through Aug. 9, the highest such figure through that date since 2010. The number includes both public companies and private companies with public debt.

Prominent companies that have declared bankruptcy recently include Tailored Brands, the owner of Men's Wearhouse; Prysm Inc., a large display screen maker, and oil driller Fieldwood Energy and Summit Gas Resources Inc.

S&P noted while bankruptcies have afflicted various sectors, consumer-focused companies have been especially vulnerable. The toll in this sector included retailers Ascena Retail Group, J.Crew, Lord & Taylor, J. C. Penney and Neiman Marcus.

Some analysts contend the pandemic only worsened things for companies that were already on a fragile footing.

"Anybody who was … in trouble in the retail space to begin with got hammered, and they're there [in bankruptcy]," said John Blank, chief equity strategist for Zacks Investment Research.

The industrials and energy sector were also badly hit, accounting for almost 100 bankruptcies this year, including auto rental firm Hertz Global, marine transportation service provider American Commercial Lines and oil and gas producer Chesapeake Energy.

Analysts warn of a wave of more business failures.

"Brick-and-mortar retail is not gonna work out," Blank said.

Lauren Henderson, economic analyst at Stifel, said the economy will "see more pressure on the retail sector coming on as well as small businesses." She singled out the leisure, hospitality and transportation sectors as particularly susceptible in the latter part of this year.

"The question is whether or not these companies have enough balance sheet strength to get to the other side of the pandemic [and survive]," said Quincy Krosby, chief market strategist for Prudential Financial.

Mohamed El-Erian, chief economic adviser at Allianz, told CNBC he thinks a wave of corporate bankruptcies could scuttle the rally the stock market has enjoyed since March lows.

“I think what derails this market isn’t more China-U.S. tension, isn’t more political differences. It would be if we get … large-scale bankruptcies,” he said. “That is what derails this market.”

El-Erian also warned more significant bankruptcies would lead to “structurally embedded” economic woes.

“Bankruptcies go from short-term liquidity problems to long-term solvency problems. If you get that, then unemployment becomes more problematic, and you get capital impairment,” he said. “If there’s one thing Federal Reserve money cannot help markets through, it’s capital impairment events.

Last month, Bloomberg reported that Edward Altman, professor emeritus at New York University’s Stern School of Business, predicted by year-end at least 60 American companies with liabilities above $1 billion will go bankrupt – the so-called ‘mega-bankrupcies.’

“There was a huge buildup in corporate debt by the end of 2019 and I thought the market would gain some much needed deleveraging with the COVID-19 crisis,” Altman said. “Now, [it] seems like companies again are exploiting what seems to be a crazy rebound [in the market].”

“These mega bankruptcies will break the all-time record – even bigger than in 2009,” Altman predicted.