Are Companies Entering The "Find Out" Stage Of The Business Cycle?

TL;DR

Two decades of near-zero interest rates created a wave of debt-dependent zombie companies now collapsing as cheap money disappears.

Key Points

• 1.Record bankruptcies without a recession: S&P tracked 785 significant business bankruptcy filings in 2025 — the highest ever outside an official recession — including 32 "mega bankruptcies" from firms with over $1 billion in assets.
• 2.Chapter 11 as a financial tool: Most major companies use Chapter 11 (not Chapter 7) to stay operational, then execute "363 sales" — selling business operations free of debt to buyers, often private equity, with minimal regulatory scrutiny.
• 3.Private equity's bankruptcy loop: PE firms buy distressed companies, immediately reload them with debt, increasing the likelihood of a second bankruptcy. Bloomberg found 60 large companies filed for bankruptcy twice in 2023–2024; Party City went bankrupt again just 14 months after its first sale.
• 4.Hidden bankruptcies rising: Out-of-court debt-for-equity swaps hit a record high in early 2025 — these private settlements bypass public courts entirely, meaning official bankruptcy numbers actually undercount the true scale of corporate distress.
• 5.Regulatory capture via speed: The FTC rarely blocks bankruptcy sales because deals close too fast for understaffed regulators to react, enabling anti-competitive consolidation — like CVS and Walgreens absorbing Rite Aid's locations, expanding pharmacy monopolies in local markets.
• 6.The middle-market squeeze: Businesses serving middle-income consumers face the worst pressure, caught between ultra-price-sensitive budget shoppers and wealthy luxury buyers, while healthcare and retail consolidation is eliminating job competition for workers in entire regions.