The United States has witnessed a surge in corporate bankruptcies, reaching levels not seen since the aftermath of the 2008 global financial crisis. The stark reality of elevated interest rates and diminished consumer spending has driven at least 686 US companies into bankruptcy proceedings in 2024, marking an 8 per cent increase from the previous year.
This significant uptick represents the highest number of corporate failures since 2010, when 828 companies filed for bankruptcy protection, according to S&P Global Market Intelligence data. The trend has been particularly severe for companies dependent on discretionary consumer spending, with notable casualties including Party City, which recently announced the closure of its 700 stores nationwide.
The retail sector has borne the brunt of this economic turbulence, with prominent names such as Tupperware, Red Lobster, Spirit Airlines, and Avon Products joining the list of major bankruptcies. These failures reflect the broader economic challenges, including persistent inflationary pressures and reduced consumer confidence following the end of Covid-19 stimulus measures.
Out-of-court manoeuvres to avoid bankruptcy have also increased, outpacing actual bankruptcy filings by a ratio of two to one, according to Fitch Ratings. These liability management exercises, while intended as last-resort measures, often result in complicated debt structures that can ultimately lead to bankruptcy if operational issues remain unresolved.
The Federal Reserve’s recent indication of potential rate cuts has offered some relief, though experts anticipate only modest reductions in 2025. The situation remains particularly challenging for priority lenders to issuers with substantial debt portfolios, who experienced their lowest recovery rates since 2016.
While the current wave of bankruptcies raises concerns, some analysts, including Peter Tchir of Academy Securities, suggest the impact on the broader economy may be limited, pointing to relatively stable spreads between corporate and government debt rates. However, the trend continues to reflect the significant shift from the low-interest rate environment of 2021-2022, when only 777 bankruptcies were recorded over that two-year period.
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