2025 was marked by significant U.S. bankruptcy and restructuring activity. To start, there were a number of significant U.S. court decisions in 2025, notably involving instances of appellate courts in Texas overturning bankruptcy court decisions there:
Serta: Literally a day before the start of 2025, the Fifth Circuit issued its Serta decision, which focused on an “open market purchase” exception to pro-rata sharing in U.S. syndicated credit agreements commonly used to accomplish non-pro-rata liability management transactions and interpreted that exception narrowly, reversing a bankruptcy court ruling that the up-tier transaction at issue was a permissible open-market purchase.
Westco/Incora: In September 2025, a Texas district court indicated that it was going to reverse a bankruptcy court finding that a multi-step up-tier liability management transaction was invalid, on the basis that “it had the effect” of lien stripping and it subsequently issued an opinion on the matter in December 2025.
ConvergeOne: In December 2025, a Texas district court overturned a company’s confirmed reorganization plan after finding that it violated the Bankruptcy Code’s equal treatment rule, because backstop participation rights were provided only to certain creditors.
The key takeaway from the Serta and Westco/Incora decisions is that the outcome of challenges to liability management transactions ultimately turns on the specific facts and circumstances at issue, as well as the precise language of the underlying loan documents. The Converge One decision, on the other hand, may put a damper on the relatively common practice of using non-pro-rata exit financing structures in U.S. Chapter 11 cases.
Beyond these decisions, 2025 featured its fair share of both out-of-court and in-court activity. In terms of out-of-court transactions, notably the Serta decision did not halt liability management activity. Instead, such transactions have continued at a steady pace, with borrowers and issuers relying on alternative pro-rata–sharing exceptions or leveraging particular nuances in their loan documentation to achieve desired results.
Moreover, 2025 saw some interesting borrower challenges to the relatively common practice in the U.S. of lenders entering into “cooperation agreements” designed to enable lenders to act as a unified front when negotiating with a borrower on a liability management transaction. In November 2025, “anti-cooperation” language cleared the broadly syndicated loan market, with provisions aimed at preventing lenders from entering into such agreements. Further, an affiliate of the borrower that obtained such language commenced a lawsuit alleging that its lenders had violated U.S. antitrust law by entering into a cooperation agreement. As things stand, it is too early to know the outcome of this case and any broader implications that it may have for the market, as it is ongoing.
In court, at least 717 U.S. corporate bankruptcies were filed in the 11 months to November 2025, around 14% more than during the same period in 2024 and the highest rate since 2010. Among filings by businesses with reported assets worth more than USD100m, manufacturing and industrial companies accounted for the biggest share. “Mega” bankruptcies, filed by businesses with reported assets worth more than USD1bn, increased in the period covering the second half of 2024 and the first half of 2025.
First Brands
Of all of the U.S. bankruptcy filings in 2025, probably the most impactful has been the Chapter 11 filing of automotive parts company First Brands in September 2025. In 2025 the company started running into some problems with tariffs and excess debt service costs and over the summer of 2025 a USD6.2 billion refinancing effort led by Jefferies was paused for a quality-of-earnings review. In September 2025, the situation deteriorated rapidly with the company’s 1L debt, which had been trading at close to par, dropping to the .30s and the company’s 1L lenders having to put in an emergency USD24.5 million bridge loan to allow the company to file for bankruptcy.
First Brands’ Chapter 11 filing revealed that, in addition to significant on-balance sheet ABL and term loan debt of approximately USD6bn, the company had off-balance-sheet debt at SPVs of around USD2.4bn as well as some USD800m in supply chain financing liabilities. Moreover, allegations of financial fraud quickly emerged with the ABL and term-loan lenders and SPV lenders asserting interests in the same collateral (i.e. it appears to have been double pledged) and investigations into the company’s third-party factoring reportedly revealing widespread irregularities including fabricated and inflated invoices and duplicate sales to multiple and even the same factors.
As such, the First Brands case, which is still ongoing, has ramifications for lenders and investors across the U.S. market that are still being worked through. Namely, how lenders and investors can protect themselves from being a victim of securitization fraud in future transactions. There is a renewed focus on, among other things, diligence of borrower fundamentals, collateral tracing, and SPV structuring, which may need to be revisited as, SPV structures are designed to be bankruptcy remote.
Resilient economy keeps failure levels broadly stable
Although there were significant legal decisions and elevated in-court restructuring activity last year, there was not a massive surge in business failures with the U.S. economy having remained resilient in the face of tariff and other pressures and U.S. credit markets continuing to provide sufficient liquidity to borrowers and issuers. 2026 appears poised to largely continue this pattern.
S&P Global Ratings projects the U.S. speculative grade corporate default rate could hit 4.25% by June 2026. Meanwhile, reports put the September 2025 U.S. rate at 4.6%, indicating that we are unlikely to see a big shift in the months to come. Rather, in the coming months, economic and policy pressures, and any increase in bankruptcies and restructurings, are likely to be concentrated in the most exposed parts of the economy, rather than producing a broad-based spike in corporate failures.
Sectors under stress and investment opportunities
In terms of specific sectors to watch, stress, and the potential to invest, is likely to be most visible in pockets where costs are rising, policy is shifting, or consumer demand is uncertain. Retail and leisure remain under pressure as margins tighten, and spending patterns change.
Renewable energy is also an area to monitor. As U.S. subsidy support tapers, it raises the prospect of some projects becoming stressed as they face higher financing costs and more challenging economics.
Healthcare is another sector where federal policy decisions can quickly reshape cashflows, particularly where reimbursement is sensitive to changes in Medicare and Medicaid.
Beyond that, investors are watching the automotive supply chain and building products, both tied closely to how confident households feel about big ticket purchases and home improvement spend.
Taken together, the year ahead looks less like a broad wave of failures and more like a market in which outcomes hinge on documentation, due diligence and sector exposure.
