Private equity and venture capital-backed companies filed a record 110 bankruptcies in 2024, nearly 16 percent of the total 694 U.S. corporate filings and the highest annual count since S&P began tracking in 2010.
Though last year’s start of rate cuts brought modest relief, there were still 15 percent more portfolio company insolvencies than 2023—itself a challenging year for sponsors relative to historical norms.
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Even then, the headline figure might not tell the whole story.
Data per S&P Global Market Intelligence
Research from FTI Consulting suggests sponsors are more frequently pursuing out-of-court solutions to avoid formal bankruptcy proceedings. Taken together, portfolio company distress is, by some measures, nearing levels not seen since the financial crisis.
A handful of portfolio companies have even managed to enter “Chapter 22” territory with multiple filings.
Retail chain Joann, acquired by Leonard Green & Partners for $1.6 billion in 2011, has now filed twice in the last twelve months despite 96 percent of stores remaining cash flow positive. The first filing cut the company’s $1 billion debt load in half, but it later returned to court citing vendor issues.
This growth in the number of distressed situations has had a knock-on effect on the prevalence of liability management exercises.
But, while increasingly popular, their efficacy is questionable. A recent AlixPartners survey shows just 3 percent of restructuring professionals think either ‘amend & extends’ or liability management efforts provide permanent solutions (the aforementioned Joann Inc. offering an example of why that’s the prevailing sentiment).
Some attempts have not only failed but also led to litigation. Creditors of Instant Brands, acquired by Cornell Capital for $600 million in 2019, have sued over a $345 million dividend recapitalization they claim left the company insolvent. Cornell Capital called the allegations “baseless attacks,” attributing the bankruptcy to “uncontrollable macroeconomic events.” The case is set for trial later this year.