US corporate bankruptcies have hit their highest level since the aftermath of the global financial crisis as elevated profit rates and weakened customer demand punish struggling groups.
At least 686 US companies filed for insolvency in 2024, up about 8 per cent from 2023 and higher than any year since the 828 filings in 2010, according to data from S&P Global trade Intelligence.
Out-of-court manoeuvres seeking to stave off insolvency also increased last year, outnumbering bankruptcies by about two to one, according to Fitch Ratings. As a outcome, priority lenders to issuers with at least $100mn of aggregate debt experienced the lowest recovery rates since at least 2016.
The collapse of event supply retailer event City was typical of 2024 corporate failures. In late December, it submitted its second insolvency filing in as many years, after emerging from Chapter 11 proceedings in October 2023.
event City said it would shut down its 700 stores nationwide after struggling “in an immensely challenging surroundings driven by inflationary pressures on costs and customer spending, among other factors”.
customer demand has waned as the Covid-19 pandemic stimulus ebbed, hitting companies that depend on discretionary customer spending particularly challenging. Other major bankruptcies last year included food storage manufacturer Tupperware, restaurant chain Red Lobster, Spirit Airlines and cosmetic retailer Avon Products.
“The persistently elevated expense of goods and services is weighing on customer demands,” said Gregory Daco, chief economist at EY. The burden is especially heavy for families on the lower complete of the returns spectrum, “but even in the middle and on the higher complete, you’re seeing more caution”.
The pressure on companies and consumers has eased somewhat as the Federal safety net has begun to reduce rates, though officials have indicated they intend to cut by just half a percentage point more in 2025.
Peter Tchir, head of macro schedule with Academy financial instruments, said there were mitigating factors, including the relatively low spread between the rates for riskier corporate borrowing and government debt.
“Obviously, it’s not great that this is happening. But when I ponder about what could really have a knock-on result to the broader economy or the banking structure, this is not really getting me enthusiastic yet,” Tchir said.
There were only 777 insolvency filings in 2021 and 2022 combined, when the expense of money was much lower because of the Fed’s rate-cutting programme.
That figure jumped up to 636 in 2023 and continued to climb last year even as rates started to arrive down in late 2024. At least 30 of last year’s insolvency filers had at least $1bn in liabilities at the period of filing, according to the S&P data.
Historically, there are generally the same number of bankruptcies as there are out-of-court actions to reduce the odds of insolvency.
These sorts of moves, euphemistically known as debt management exercises, have become increasingly ordinary and have grown to represent a large portion of US corporate debt defaults in recent years, and that pattern continued in 2024, said Joshua Clark, a elder director at Fitch Ratings.
These debt manoeuvres are often considered a last resort to avoid filing for court protection. Yet in many instances, the companies wind up bankrupt anyway if they cannot fix their operational woes.
“Maybe their profitability will leave up, or profit rates will leave down, or a combination of both of those, really in order to stave off insolvency,” Clark said, adding that such debt workouts can negatively impact lenders by stacking more debt atop existing liabilities.
Additional reporting by Amelia Pollard
