A Rising Tide of Bamkruptcies

New worries about the huge debts that corporations have been building up

It came as no surprise, but the announcement was a shock anyway. AM International, the 58-year-old maker of office machinery, last week filed for bankruptcy. The company, once known as Addressograph-Multigraph Corp., borrowed heavily over the past several years in a hasty attempt to modernize and expand its line of office equipment. The project proved too costly, and AM International ran up debt that last week

totaled $465 million. After

losses of $245 million in 1981 and more red ink expected this year, the company realized that it was not making enough money even to pay off its loans, and Chairman Joe B. Freeman Jr. decided to call it quits.

No more than 24 hours later, Saxon Industries, another major office-equipment manufacturer (1981 sales: $715 million), said that it was going into bankruptcy. The company had also run out of money because of the high cost of financing its debt.

The failures of two of America's 500 largest industrial firms did not shake the financial markets or Wall Street. Moneymen have been expecting some corporate bankruptcies. Only two weeks ago, Commerce Secretary Malcolm Baldrige said that he would not be surprised to see one or two major companies suddenly fail. Moreover, last week's casualties are not likely to be the last during the current recession. A number of equally large firms in industries such as airlines, metals, retailing, auto supply, farm equipment and housing remain on the critical list.

The top lending officer of a big New York bank believes that at least 100 companies among the 1,000 largest American firms have "potentially serious problems." Adds Gilbert de Botton, president of Rothschild Inc. in New York: "Everybody on Wall Street expects at least one major bankruptcy before the end of the recession."

This year already looks as if it could be the worst period for business failures since 1932. As of April 8, 6,205 companies had folded, 55% more than in the same period last year and almost as many as in all of 1978.

Like a consumer who uses his credit card too often, many U.S. corporations now find themselves over their heads in debt. As sales continue to slacken and interest rates remain high, some of the largest and most successful American corporations are experiencing problems. Last week RCA Corp. was negotiating to sell its Hertz auto-rental subsidiary for about $700 million to Firestone Tire & Rubber Co. so that it could reduce its nearly $3 billion debt. Boeing saw its bond rating reduced by Standard & Poor's from AA—to A because it will have to borrow heavily in order to finance the construction of new 767 and 757 airliners. Phelps Dodge, which announced earlier this month that it is temporarily closing all of its copper mines, laid off about 3,800 of its workers and reduced salaries by as much as 8%. A somber Henry Kaufman, the Salomon Bros, economist, informed Congress last month that American business "has been devastated by the debt explosion. Our economy and financial markets are more fragile than at any time since the end of World War II."