November 2024: Recent Developments in the Realm of Bankruptcy and Restructuring

In an effort to keep you apprised of what’s happening in the realm of bankruptcy and restructuring, here are five recent developments to be aware of.

1. This year’s long line of bankruptcy filings within the retail and restaurant industries continued with two prominent household names. This month, True Value Hardware and TGI Fridays filed for bankruptcy. According to reporting, True Value plans to sell its business to rival Do It Best, while TGI Fridays is exploring plans to weather its financial issues.

2. Spirit Airlines filed for bankruptcy on November 18, following a failed attempt to sell to JetBlue. According to the filing, Spirit has lost more than $2.5 billion since the start of 2020 and faces looming debt payments totaling more than $1 billion over the next year.

3. Zooming out, Epic AACER found that overall commercial bankruptcy filings were up 8% to 2,582 in October 2024 from 2,396 filings in October 2023. Commercial filings also increased month-over-month, with a 5% increase between September and October this year.

4. However, one commercial bankruptcy category has recently seen a significant decrease in filings. Small business subchapter V Chapter 11 filings have been slashed since the Senate failed to extend COVID-19-era provisions that raised the debt limit threshold to $7.5 million. After the provisions expired in June, the subchapter V threshold returned to its 2019 limit of $2.7 million. The return to the lower limit has already made the bankruptcy process more costly and lengthy for hundreds of distressed middle-market businesses now disqualified from the subchapter V option.

5. Moody’s Ratings recently reported that private equity-backed companies default at twice the rate of companies without private equity backing. Moody’s found that private equity-backed companies defaulted at a rate of 17% between January 2022 and August of this year. One reason Moody’s cited for the findings was private equity’s recent increased use of distressed debt exchanges, which accounted for most of the defaults.