Driven by a smorgasbord of factors, the pace of corporate bankruptcies among large companies — those with at least $100 million in assets — has continued to accelerate this year.
There were 108 such bankruptcy filings (Chapters 11 and 7 combined) during the 12 months ended June 30, up 8% from the prior 12-month period, according to a new report from Cornerstone Research. The figure is 43% higher than the annual average between 2005 and 2023.
The only times of more extensive bankruptcies over the past two decades were during the 2008-09 financial crisis and the COVID-19 pandemic in 2020.
This time, instead of single major disruptive factors, several are in play at once, Cornerstone noted: (1) rising costs due to high inflation and interest rates; (2) lingering impacts of COVID-19; (3) increased competition for companies’ products and service; and (4) unsuccessful strategic initiatives.
All four of those factors plagued WeWork, which with $15 billion in assets was the largest company to go bankrupt in the recent 12-month period. The second-largest, Rite Aid, had assets only half that great.
Other well-known companies suffering bankruptcies included communications firm Audacy, sewing retailer JOANN, trucking company Yellow and Red Lobster Management.
While the number of bankruptcies was up, their average asset size for the 12-month period was down: $673 million, 42% lower than in the previous 12 months. There were also fewer mega-bankruptcies (assets greater than $1 billion): 24, down from 28 in the 12 months ended June 30, 2023.
Rising costs due to inflation and interest rates were a factor in 21 of the 24 mega-bankruptcies. The lingering effects of the pandemic were cited in 19 of those cases. For example, WeWork stated that the pandemic “wreaked havoc on the commercial real estate landscape, particularly in major cities where WeWork has a large footprint.”
Increased competition was cited in 14 of the mega cases, and unsuccessful strategic strategies were a feature in 12 of them.
By industry, the total number of bankruptcies for companies with assets greater than $100 million increased across almost all industries, most notably retail, services, and manufacturing.
On the other hand, mining, oil and gas bankruptcy filings, which accounted for the largest share in 2020, at 28%, have declined substantially since then. The industry accounted for only 3% of bankruptcies in the recent 12-month period.
Meanwhile, also on the rise are so-called Liability Management Transactions (LMTs), such as “uptiering,” “drop down,” and “double-dip” transactions. Conducted outside of bankruptcy court, these can enable financially distressed companies to partially refinance their debt, access liquidity, or extend debt maturities, Cornerstone noted.
In the most common type of LMT, uptiering, the borrower and a majority of its creditors typically amend the loan agreements to allow the borrower to issue new debt that is senior to existing debt.
Thirty-five companies were involved in uptiering transactions between 2020 and the first half of 2024. Among the 13 that undertook these deals between 2020 and 2022, 8 have since filed for bankruptcy.
