US corporate bankruptcies hit 14-year high as interest rates bite

US corporate bankruptcies have surged to their highest levels since the aftermath of the global financial crisis, as persistently high interest rates and weakened consumer demand place severe pressure on struggling businesses. At least 686 companies filed for bankruptcy in 2024, an 8% increase from the previous year and the highest number since 2010, according to S&P Global Market Intelligence.

Out-of-court restructuring efforts aimed at avoiding insolvency have also risen, outpacing formal bankruptcies two-to-one, Fitch Ratings reported. These liability management exercises often delay rather than solve underlying operational challenges, leaving many companies still vulnerable to bankruptcy.

Consumer and Corporate Pressures Intensify

Party City’s collapse in late 2024 epitomized the struggles faced by consumer-focused businesses. Filing for its second bankruptcy in two years, the retailer announced it would close all 700 of its US stores, citing “an immensely challenging environment driven by inflationary pressures on costs and consumer spending, among other factors.”

The pandemic-era surge in discretionary spending has dwindled as stimulus measures have faded. Companies like Tupperware, Red Lobster, Spirit Airlines, and Avon Products were among other high-profile failures in 2024, struggling to adapt to reduced consumer demand and rising costs.

“The persistently elevated cost of goods and services is weighing on consumer demands,” said Gregory Daco, Chief Economist at EY. “The burden is especially heavy for families on the lower end of the income spectrum, but even in the middle and on the higher end, you’re seeing more caution.”

Interest Rates and Financial Strain

The Federal Reserve’s rate hikes have significantly raised borrowing costs, increasing financial strain for highly leveraged companies. While the Fed began easing rates in late 2024, officials have signaled that further reductions in 2025 will be modest, totaling just half a percentage point.

Recovery rates for priority lenders have hit their lowest levels since 2016, according to Fitch Ratings, reflecting the severity of financial stress on businesses. At least 30 companies that filed for bankruptcy last year reported liabilities exceeding $1 billion at the time of filing, S&P data shows.

Liability Management as a Last Resort

Liability management exercises, a growing trend, have become a key strategy for struggling companies to delay insolvency. However, these maneuvers often increase a company’s debt load, compounding financial risk.

“Maybe their profitability will go up, or interest rates will go down, or a combination of both of those, really in order to stave off bankruptcy,” said Joshua Clark, a Senior Director at Fitch Ratings. He added that such exercises could negatively impact lenders by stacking more debt atop existing liabilities.

“Obviously, it’s not great that this is happening,” said Peter Tchir, Head of Macro Strategy with Academy Securities. “But when I think about what could really have a knock-on effect to the broader economy or the banking system, this is not really getting me excited yet.”

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