By Dietrich Knauth
Jan 2 (Reuters) - Rising interest rates, inflation, higher labor costs, and post-pandemic shifts in consumer spending were common factors cited by companies that filed for bankruptcy in 2024. Business bankruptcy filings rose 33.5 percent in the 12 months ending Sept. 30, 2024, according to statistics from the Administrative Office of the U.S. Courts.
Bankruptcy experts expect those factors to continue to drive companies over the brink next year. Several particularly hard-hit industries that struggled in 2024 will continue to experience financial distress and restructuring activity in 2025, including health care, automotive, casual dining and retail.
HEALTHCARE
Healthcare companies of all kinds filed for bankruptcy in 2024, including hospital chains, nursing homes and medical device manufacturers.
Healthcare companies — particularly ones with high debt or niche business models — are perennially at risk for bankruptcy due to frequent changes in government regulation and reimbursement spending, according to Ron Meisler, a partner in Skadden's restructuring practice.
"There's always some trouble lurking in the healthcare industry, because it's impossible to accurately predict year over year where the change is going to be," Meisler said. "You have to be prepared to play a bit of whack-a-mole."
In 2024, Georgia-based nursing home company LaVie blamed its bankruptcy in part on a new staffing rule that raised the minimum level of nursing care that must be provided to each resident, and Florida-based Clinical Care Medical Centers blamed a change in Medicare and Medicaid reimbursement rates for its Chapter 11 filing.
Moreover, some companies that grew quickly in response to unique demands during the COVID-19 pandemic are now facing cutbacks. Respirator manufacturer Vyaire went bankrupt in 2024 after a COVID-era spike in demand, and 2025 will bring similar stresses for companies like travel nurse staffing agencies and remote mental health providers.
AUTO INDUSTRY
The auto industry, including parts suppliers and electric vehicle companies, will also face continued stress in 2025. A drop in demand for electric vehicles wreaked havoc on companies that ran up debts or took investor cash to compete in that space, and prominent names like Swedish battery maker Northvolt and electric vehicle company Fisker went bankrupt in 2024.
Many companies that bet on an increase in electric vehicle demand are still unprofitable, and they need to raise cash for investments in technology and manufacturing. But lenders and investors may be less eager to bail out struggling EV companies after companies that generated huge amounts of investor interest — like Fisker and Lordstown Motors — went bust.
"The public capital markets are not really designed to support companies that are still, essentially, science experiments," Meisler said. "It really puts the pinch on an industry that looked very promising two to four years ago."
Republican president-elect Donald Trump is also widely expected to pull back support for electric vehicles by eliminating consumer tax credits and easing regulations on gas-powered cars.
Distress in the automotive industry goes beyond electric vehicles, with auto parts suppliers like American Tire Distributors, Wheelpros, and Accuride all falling into bankruptcy in 2024.
Auto parts suppliers are still grappling with supply chain disruption that dates back to the COVID-19 pandemic, and Trump's proposed tariffs could cause further damage through the industry.
Auto manufacturers have sought to protect themselves against recent parts shortages by requiring their suppliers to maintain higher inventory levels, a practice that shifts more cost and risk onto smaller companies in the supply chain, according to James Gellert of the credit risk firm Rapid Ratings.
Those supply chain risks would be exacerbated by tariffs, because U.S. auto suppliers and manufacturers rely heavily on parts from overseas, often re-selling them for relatively low profit, Gellert added.
Companies don't yet know whether extensive tariffs will be enacted, or whether they will be used as a bargaining chip in international trade talks, but S&P Global has estimated that Trump proposed tariffs on Mexico, Canada and Europe could hit auto parts suppliers hard, and ultimately cost European and American carmakers up to 17% of their combined annual core profits.
CASUAL DINING AND RETAIL
Casual dining saw a steep rise in bankruptcies in 2024, headlined by famous restaurant chains like Red Lobster and TGI Fridays. Several smaller chains like California Pizza Kitchen, Bucca di Beppo, and Rubio's Coastal Grill also went bankrupt in the past year.
Some of those restaurant brands, backed by private equity, expanded too rapidly and then collapsed under their own weight, while others have cited higher labor costs, especially in states like California, when seeking bankruptcy protection.
Restaurant chains will continue to contend with higher interest rates and inflation in food prices in 2025, forcing customers to re-evaluate whether they will continue spending on casual dining restaurants that were previously seen as offering good value for the money, according to Randall Klein of Goldberg Kohn.
"The costs of running a restaurant business has gone up significantly, and restaurants are not always able to pass those costs through to their customers," Klein said. "Food prices have gone up, check sizes have gone down, and people are going out to eat less frequently."
Retail, too, remains a challenge, continuing a years-long "retail apocalypse" that has pushed companies like Big Lots, Express, Party City, The Container Store, Rue21 and Joann into bankruptcy.
Like the casual dining and automotive industries, the retail industry is hampered by a set of lingering factors that will cause further stress in 2025, including high costs for labor, supplies, and rent. Shopping has moved increasingly toward online purchases and away from the traditional brick-and-mortar retailers, a trend that accelerated during the pandemic.
(Reporting by Dietrich Knauth)
((Dietrich.Knauth@thomsonreuters.com;))
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