Companies entering bankruptcy proceedings in US courts so far in 2024 are opting to liquidate at the lowest rate in at least 15 years, according to an analysis by S&P Global Market Intelligence.
In the first nine months of 2024, 184, or 35.9%, of the 513 US corporate bankruptcy filings this year were categorized as liquidations. The share is lower in 2024 so far than any of the 14 prior years. The balance of filings through the end of September, 64.1%, sought to reorganize the companies, which was similar to the 64.45% rate observed through the first half of the year.
Monthly bankruptcy filings slowed in the third quarter after peaking in June as corporate debt levels declined and interest coverage ratios improved for both investment-grade and non-investment-grade companies, according to Market Intelligence data.
However, the pace of bankruptcies this year is on track to exceed 2023's filings and approach the decade-high total of 638 bankruptcies filed in 2020, though a September move by the US Federal Reserve to cut its benchmark interest rate by 50 basis points may offer some relief.
Largest Q3 2024 bankruptcies favor Chapter 11
There have been 329 bankruptcies filed through the third quarter this year as Chapter 11 cases, which allow a company to operate while reorganizing its debt with creditors under court supervision. There were 46 Chapter 11 filings in August, the second-highest monthly volume this year. Another 42 Chapter 11 bankruptcies were recorded in September.
Meanwhile, Chapter 7 bankruptcies did not exceed 20 filings in any month during the third quarter. In Chapter 7 filings, companies opt to liquidate assets to pay off creditors.
The largest bankruptcies in the third quarter with liabilities over $1 billion were all filed as Chapter 11 reorganizations. These include SunPower Corp.; Avon International Operations Inc.; Big Lots Inc.; Tupperware Brands Corp.; and Red River Talc LLC, a subsidiary of Johnson & Johnson.
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Bankruptcy filing type by sector
From the start of 2023 through the end of the third quarter of 2024, Chapter 11 filings have accounted for over 55% of all bankruptcies in six of 11 sectors. Chapter 11 filings were nearly even with Chapter 7 filings in another four sectors.
Companies in the real estate sector overwhelmingly favored reorganization over liquidation during the 21-month period, with 84% of filings seeking reorganization.
The utilities sector was the only sector in which liquidation filings were largely the more common approach to bankruptcy, accounting for 62.5% of all filings.