Deep Dive:

  • According to a report released this week by Cornerstone Research, an economic and financial consulting firm in San Francisco, in the 12 months through June, assets exceeding$1 billioncorporate "mega-bankruptcies" increased by approximately 33% year-over-year to 32 filings, compared with 24 in the same period last year.
  • The report shows that the rise in large corporate bankruptcies has exceeded the annual average of 23 from 2005 to 2024. Inflation, high interest rates, and the lingering effects of COVID-19 remain the primary distress drivers cited by companies, while policy changes and an uncertain regulatory environment are emerging as newly cited causes of distress.
  • "Many companies have had weakened balance sheets over the past three years or so of high inflation and high interest rates," Matt Osborn, a co-author of the report and a principal at Cornerstone, said in an interview on Thursday. "The uncertainty in the regulatory environment has recently been layered on top of that, so companies that were already weakened by macroeconomic headwinds are now also citing policy uncertainty."

Deep Insight:

The report notes that 15 of the 31 mega-bankruptcies cited regulatory, legal, and policy challenges in their first-day declarations filed with the U.S. Bankruptcy Court.

Four of the largest bankruptcies came from the renewable/clean energy sector, including Sunnova Energy International, which had total assets of $13.4 billion during the period (the largest bankruptcy), as well as Global Clean Energy Holdings, SunPower, and Mosaic Sustainable Finance, all of which cited negative impacts from public policy uncertainty.

"Regulatory changes and uncertainty have further depressed demand for the company's products and weakened the company's ability to effectively raise capital," Sunnova said in its bankruptcy filing, as cited in the report.

Three companies on the mega-bankruptcy list cited trade policy and tariff uncertainty as distress drivers, including Wheel Pros, a manufacturer of wheel and vehicle products; At Home, a home goods company; and Marelli Automotive Lighting USA, an automotive parts supplier. The report quotes Marelli as saying it "has been severely impacted by tariffs due to its import/export-oriented business and the imposition of tariffs on automotive manufacturers and suppliers." According to Ion Analytics, Marelli filed forbankruptcy protection。

Meanwhile, the burden of high inflation and high interest rates was still cited as a stress factor this year, along with shifting consumer behavior and pandemic aftershocks. For example, ultra-low-cost carrier Spirit Airlines (the second-largest mega-bankruptcy of the period, with total assets of $9.5 billion) claimed that the "margin advantage" has shifted back to legacy carriers like Delta Air Lines and value carriers like Southwest Airlines, which "have more leeway to attract price-sensitive customers while also catering to premium leisure demand."

Spirit filed for bankruptcy in November 2024 and in Augustre-entered Chapter 11 proceedings, as reported by The Wall Street Journal.

Looking ahead, Osborn said it is unclear whether the pace of bankruptcy filings will continue over the next 12 months. If interest rates continue to decline, it could lower the cost of capital and provide some financial relief to companies, but it could also exacerbate inflation—which is the primary stress factor. "Interest rates always trade off against inflation," he said.