Dive Brief:

• The share of U.S. corporate bankruptcy filings made up of Chapter 11 reorganizations — a route which allows companies to continue operating while they reorganize their debt under court supervision, rather than selling assets to pay off creditors as in Chapter 7 cases — rose in H1 2024 to comprise 64.45% of U.S. corporate bankruptcy filings. This compares to 54.74% in the year earlier period, according to an S&P Global report.
• The shift comes as total corporate bankruptcy filings in H1 rose 5.8% to 346 in the first half of 2024 from 327 in the year earlier period, according to additional data provided by a S&P spokesperson. High interest rates and supply chain issues were among the factors pushing firms to file for bankruptcy protection, according to the report.
• While reasons for bankruptcy strategies vary, the rising reorganizations could signal that companies are more hopeful about their future prospects. “That relatively, a larger share of companies are looking to reorganize may signal that several factors — including pending benchmark interest rate cuts by the Federal Reserve, the outlook for the US economy and consumer spending and the growth of private credit as [a] potential funding source — are driving optimism for a favorable reorganization outcome,” according to a statement emailed to CFO Dive by a S&P Global Market Intelligence spokesperson. 

Dive Insight:

While companies across all industries chose the Chapter 11 bankruptcy route, the preference for reorganization varied by industry based on filings from 2023 through June, the report found. 

Sectors that favored Chapter 11 during that 18-month period included real estate firms, where 83.3% opted to reorganize, along with communications services (73.91%), while more than 60% of materials and information technology companies also restructured. 

By contrast, utilities and energy companies were most likely to liquidate, with over half of the bankruptcy filings in those sectors, 62.5% and 51.85% respectively, filing for Chapter 7. 

The reorganizations trend comes as the number of distressed companies seeking bankruptcy relief continued to surge in the second half. Total bankruptcy filings in the first six months of the year rose 15% from the year-earlier period to 251,012, according to Epiq AACER, which tracks U.S. bankruptcy filing data. Total commercial Chapter 11 bankruptcies filed in H1 2024 rose 34%. 

“The continued increase in bankruptcy filings reflects the growing economic strain on businesses and households,” American Bankruptcy Institute Executive Director Amy Quackenboss said in a statement in the release.