The silent rise of ‘mega bankruptcies’ in the U.S.

There were 113 large bankruptcies in the 12 months through June, including 24 “mega bankruptcies”
By Sam Bourgi
•
24 October 2024
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2024 is on track to be the worst year for corporate bankruptcies in decades, raising red flags about an economy that policymakers claim is in good shape.

According to Cornerstone Research, 113 U.S. companies with assets of more than $100 million filed for bankruptcy in the 12 months through June, much higher than the annual average of 79.2 between 2005 and 2023.

By comparison, large corporate bankruptcies peaked at 106 in the first half of 2009 during the height of the global financial crisis.

The Cornerstone data showed that bankruptcy filings accelerated in 2024, with 60 reported filings. This is nearly 50% higher than the six-month average between 2005 and 2023.

In the 12 months through June, 24 “mega bankruptcies” were filed by companies with more than $1 billion in assets, which was also higher than the long-term average.

“Rising costs due to high inflation and interest rates [were] identified by 88% of the mega bankruptcies,” Cornerstone Research said.

The lingering effect of Covid and supply-chain issues stemming from the Russia-Ukraine war were the other common problems reported by mega-corporations.

Cornerstone Research’s data is consistent with S&P Global reporting, which showed that corporate bankruptcies are on track for their worst year in more than a decade.

S&P Global listed 17 “mega bankruptcies” in the 12 months through June, blaming the rise on high interest rates, supply chain issues, and weaker consumer spending.

Although the rise in corporate bankruptcies doesn’t necessarily mean the U.S. is heading for a recession, it is a visible crack in the economy’s foundation.

A worrying sign

One of the biggest red flags about surging corporate bankruptcies is that they’re concentrated in consumer-facing industries.

According to Michael Maharrey of Money Metals Exchange, most of the recent filings were in the consumer discretionary sector, which includes companies that produce goods and services that “people want but don’t need.”

Consumer discretionary companies include restaurants, clothing stores, sporting goods retailers, and hotels, among others. These companies are part of the consumer-driven economy, which is responsible for more than 70% of U.S. GDP.

“The data seems to indicate that consumers are cutting back on discretionary spending as they continue to try to make ends meet in this inflationary world,” said Maharrey.

“This is what the beginning of a recession looks like,” he warned.

In addition to rising bankruptcies, Corporate America also suffers from the rise of “zombie companies,” or businesses that earn just enough to service their debt and avoid closing their doors.

Experts say zombies lack the capital to reinvest and grow their businesses. They’re often on the cusp of bankruptcy, especially if they borrow in a high-interest-rate environment.

According to data from the Associated Press, America is home to roughly 2,000 zombie companies.

“Let’s see what happens when these companies need to roll over their debt at current rates,” said market analyst Michael A. Arouet.

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