Lazard’s Orszag Warns of Cascading Bankruptcies Without More Aid

Firms hammered by Covid-19 could start to bring down a much wider array of companies unless more funds are injected into the economy, according to Lazard Ltd.’s Peter Orszag, chief executive of the financial-advisory business.

“If unemployment remains elevated for an extended period of time, and especially if there is not additional rounds of government stimulus, we’re at some significant risk of cascading bankruptcies,” Orszag said Tuesday in a Bloomberg Television interview. “A bankruptcy at one firm then infects another firm, and then that infects a third firm.”

Congress is seeking an additional round of stimulus after almost $3 trillion has been earmarked for companies and individuals stung by the shutdowns tied to the Covid-19 pandemic. Yet even companies that have sought payroll assistance, such as airlines, may have to cut jobs as demand for services is slow to return.

WATCH: Lazard’s Orszag warns of cascading bankruptcies.

Source: Bloomberg

Bankruptcies have already been emerging, and Lazard has been hired to work on high-profile restructuring deals including that of retailers J.C. Penney Co. and Forever 21. Orszag expects there will be additional rounds of intermittent shutdowns that will further complicate a recovery.

“This is not going to be one and done, and boom we’re out of the woods,” he said. “I don’t think we’re going to flip a switch and everything turns back on.”

Read more about expectations for economic fallout from the pandemic

Orszag, who was the director of the Office of Management and Budget during former President Barack Obama’s administration and is a contributor to Bloomberg Opinion, said he believes state and local aid should be at the forefront of the next wave of government aid. That’s been a point of contention in Congress, though House Speaker Nancy Pelosi has hinted of at least a partial agreement with Senate Majority Leader Mitch McConnell on that part of the rescue.

The Lazard banker expects public criticism to build in coming months over who gets access to funding. Jim Millstein of Guggenheim Securities, a Lazard rival in the restructuring business, said Monday that the investor class had been a major beneficiary of the Federal Reserve’s moves to backstop the credit markets.

Orszag estimated that the Fed will own as much as 15% of corporate debt as it continues to buy bonds, and predicted that government intervention will be prolonged, forcing companies to consider stakeholders other than their investors.

“The backlash is going to be building,” Orszag said. “It’s going to be reaching its peak right when we probably are going to need an additional round of government assistance.”

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Sonali Basak in New York at sbasak7@bloomberg.net

To contact the editors responsible for this story:
Michael J. Moore at mmoore55@bloomberg.net

Steve Dickson

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