The number of corporate bankruptcies in the United States has reached its highest level since the global financial crisis, as rising interest rates and weak consumer demand weigh on struggling companies.
At least 686 U.S. companies filed for bankruptcy in 2024, an increase of about 8% from 2023 and the largest increase since 2010, when 828 companies filed for bankruptcy, according to data from S&P Global Market Intelligence.
Out-of-court lawsuits to avoid bankruptcy also rose last year, outnumbering bankruptcies by about two to one, according to Fitch Ratings. As a result, preferred lenders to issuers with aggregate debt of $100 million or more experienced their lowest recovery rates since at least 2016.
The collapse of party supply retailer Party City was a typical corporate failure in 2024. The company filed for bankruptcy in late December for the second time in recent years, having emerged from Chapter 11 proceedings in October 2023.
Party City announced it would close 700 stores nationwide as it struggled in a “very challenging environment, including inflationary pressures on costs and consumer spending.”
Businesses that rely on discretionary consumer spending have been hit particularly hard as consumer demand wanes as stimulus measures due to the coronavirus pandemic fade. Other major bankruptcies last year included food storage maker Tupperware, restaurant chain Red Lobster, Spirit Airlines and cosmetics retailer Avon Products.
“Prices for goods and services continue to rise, putting pressure on consumer demand,” said Gregory Daco, chief economist at EY. The burden is particularly heavy on low-income households, “but middle-income households and high-income households are also becoming more cautious.”
The pressure on businesses and consumers has eased somewhat as the Federal Reserve has begun lowering interest rates, but officials have indicated they intend to cut rates by another 0.5 percentage points in 2025.
Peter Chill, head of macro strategy at Academy Securities, said there were mitigating factors, including relatively low interest rate spreads between risky corporate borrowing and government debt.
“Obviously, it’s not great that something like this is happening. But when you think about what could have real ramifications for the broader economy and the banking system, it’s still not that exciting. “Hmm,” Chill said.
There were only 777 bankruptcy filings combined in 2021 and 2022, when the cost of funds was much lower thanks to the Fed’s rate-cutting program.
This number jumped to 636 in 2023 and continued to rise last year, even as interest rates began to fall in late 2024. At least 30 people who filed for bankruptcy last year had at least $1 billion in debt at the time of filing, according to S&P. data.
Historically, as many bankruptcies commonly occur as cases are litigated out of court to reduce the likelihood of bankruptcy.
These types of moves, euphemistically known as liability management exercises, have become increasingly common and have grown to account for the majority of U.S. corporate defaults in recent years, a trend that will continue into 2024, according to Fitch Ratings. said Joshua Clark, senior director of .
These debt strategies are often considered a last resort to avoid filing for court protection. However, in many cases, businesses end up going bankrupt if they cannot solve their management problems.
“To avoid bankruptcy, it’s probably going to be either higher profitability, lower interest rates, or a combination of both,” Clark said. It added that it could have a negative impact. liabilities.
Additional reporting by Amelia Pollard
