Why Are So Many Companies Going Bankrupt In 2025? - David Friedberg

Corporate Bankruptcy Trends (2025)

• S&P Global reports 446 "large" corporate bankruptcies occurred through July 2025, the highest volume since 2010.
  • "Large" is defined by S&P as public companies with debt ≥$2M or private companies with assets/liabilities ≥$10M.
• While 2025 levels remain lower than the 2008 Great Financial Crisis peak, the trajectory indicates a significant uptick compared to prior years.
• Monthly data from 2020–2025 reveals a correlation between rising bankruptcy filings and the interest rate hike cycle of 2022–2023.

Macro Drivers of Bankruptcies

• Chamath Palihapitiya attributes the rise in bankruptcies to the exhaustion of a "reservoir of free money" accumulated from 2010 to 2021 (including pandemic-era liquidity), rather than immediate policy impacts like tariffs.
• The period of artificially suppressed interest rates (near zero) allowed insolvent companies to accumulate capital and delay structural failures.
• The current wave represents a delayed process of "creative destruction" where companies with negative unit economics are finally being liquidated.
• Former market inefficiencies included a regulatory regime and Federal bureaucracy that hindered transformative M&A activity since the Great Financial Crisis.
• As regulatory constraints relax and liquidity dries up, market participants are expected to become more aggressive in acquiring struggling assets to survive.

Sector-Specific Disruptions

• Retail: Physical retailers are disproportionately affected due to lease obligations acting as 10-year fixed debt cycles; brands facing the most scrutiny include Forever 21, Party City, and Jo-Ann Fabrics.
  • Sax Noted that commercial real estate leases create a lack of flexibility compared to service-based or online competitors.
• New Competition: Travis Kalanick's "Cloud Kitchens" launch has introduced a "Chipotle competitor" that challenges established QSR models.
• Commercial Real Estate (CRE): A "wall of debt" totaling $2.2 trillion in CRE loans matures before 2028.
  • Refinancing is currently difficult due to higher interest rates and declining property valuations.
  • Lenders (banks) are incentivized to avoid foreclosure to protect balance sheets, often engaging in "pretend and extend" restructuring deals.
  • Some deals require equity holders to inject significant capital to bridge the gap between old debt and new loan-to-value ratios.

Market Sentiment and Future Outlook

• The participants characterize the current economic correction as a "cleaning out" of zombie businesses, which may ultimately improve capital allocation and human resource efficiency.
• GDP data for Q2 2025 was restated to 3.03%, indicating overall economic strength despite softness in interest-rate-sensitive sectors.
• Chamath Palihapitiya criticizes Federal Reserve Chair Jerome Powell ("Too Late Powell") for maintaining artificially low rates for political re-nomination purposes rather than cutting rates to address the 2.0% inflation environment and real estate distress.
• Investment discussion suggests a pivot away from traditional retail brands toward athletic wear and niche brands like Brandy Melville or Alo.
• There is a noted shift in commercial lending flows away from traditional office construction toward data centers, exacerbating credit crunches for underperforming office properties.