The number of German corporate insolvencies is currently at an all-time low. However, the ongoing Covid-19 pandemic is not without consequences. Many companies were only able to cope with the pandemic by relying on government liquidity assistance and additional loans. This additional debt burden must be paid in the future. In cases where a company’s business model already appeared questionable before Covid, or in sectors which are affected by major change processes, the challenges are likely to have been exacerbated by an (in some cases significant) increase in the debt burden. Covid-related long-term changes in the markets also should be considered.
It seems realistic that the Covid-19 crisis will be reflected in increasing insolvency cases in the medium term. What does that entail for investors?