PE-Backed Companies Face Record Bankruptcies in 2024, FT Says
- Editor
- Jan 25
- 2 min read
What's Happening:
The Financial Times reports that private equity-backed companies are experiencing unprecedented bankruptcy rates, with 110 PE and VC-backed firms filing for Chapter 11 in 2024, driven by high interest rates, reduced consumer spending, and heavy debt loads.
Why It Matters:
Market Signal: Despite strong employment numbers and a rising S&P 500, these bankruptcies reveal significant stress in leveraged corporate sectors
Industry Impact: PE portfolio companies now represent a record share of total corporate bankruptcies, indicating structural issues in the PE business model
Economic Warning: The trend highlights vulnerabilities in debt-heavy business structures during periods of sustained high interest rates
The Key Moves:
Alternative Solutions: Many PE firms are pursuing out-of-court settlements and liability management exercises to avoid bankruptcy
Restructuring Wave: Companies like ConvergeOne and Joann have undergone major debt restructuring, with some entering multiple bankruptcies
Sector Shift: Consumer and healthcare sectors are experiencing the highest concentration of failures
By The Numbers:
Scale: 110 PE and VC-backed bankruptcies in 2024, the highest since records began in 2010
Debt Example: ConvergeOne filed with $1.8 billion in debt and only $21 million in cash
Interest Impact: Companies like Joann saw interest payments more than double due to rate hikes
Key Players:
CVC Capital Partners: PE firm behind ConvergeOne's leveraged buyout and subsequent bankruptcy
Cornell Capital: Faced allegations of "plundering" Instant Brands through a $345 million dividend extraction
Leonard Green & Partners: Took Joann private in 2011; company has now filed for bankruptcy twice
Key Quotes:
Debt Focus: "Everything is leveraged to the hilt" - Lawrence Kotler, Duane Morris law partner
Consumer Impact: "Consumers search for ways to find value when inflation bites" - Mike Best, Barings portfolio manager
The Wrap: The surge in PE-backed bankruptcies represents a significant shift in the private equity landscape, exposing the vulnerabilities of highly leveraged business models in an environment of persistent high interest rates and changing consumer behavior. This trend could reshape PE investment strategies and deal structures moving forward.
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