Bankrupt US companies continued to turn to Chapter 11 reorganizations to support their struggling businesses in the first half of 2024.
Year to date as of June 30, 64.45% of the 346 US corporate bankruptcy filings were categorized as reorganizations, almost 10 percentage points up from 54.74% in the comparable period of 2023, according to S&P Global Market Intelligence data. Last year, 54.02% of all bankruptcies were reorganization plans, an increase of 10 percentage points year over year.
A higher for longer interest rate environment and geopolitical uncertainty fueled a surge in US corporate reorganizations in 2023 and could be setting the stage for further increases in 2024.
June is stellar month for Chapter 11 exits
Chapter 11 filings were 223 of the filings year to date, which allows a company to operate while reorganizing its debt with creditors under court supervision. Of these filings, 52 were registered in June alone, the highest monthly figure since 2021.
Higher interest rates and supply chain issues are among factors that made it challenging for firms to maintain sufficient cash flow to pay debt service and prevent loan defaults. With significant rate relief likely to be months away, companies could be turning to the reorganization route, which provides them time to find firmer financial footing.
Chapter 7 bankruptcy filings, typically where a business liquidates assets to pay off creditors, accounted for 35.55%, or 123 filings year to date.
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Bankruptcy filing type by sector
From 2023 to 2024 June-end, companies across all but the utilities and energy sectors were more likely to reorganize than liquidate their assets. Preference for Chapter 11 exits was more pronounced in the real estate, communication services, materials and information technology sectors, where above 60% of companies sought court approval to reorganize.
Companies in the real estate sector overwhelmingly favored reorganization over liquidation during the 18-month period, with 83.33% of the filings seeking reorganization.
Liquidation was a preferred option for the utilities and energy sectors. About 62.50% of bankruptcy filings in the utilities sector, and 51.85% in the energy sector, sought reorganization.
Further, a narrow majority of companies in consumer staples and healthcare opted to reorganize.
