Where the Restructuring Market Stands: 2025 Recap and 2026 Activity

Introduction

Restructuring is a counter-cyclical business that runs hottest when the broader economy is wobbling, and 2025 delivered the busiest tape that distressed bankers have seen in a decade. Commercial Chapter 11 filings climbed to 7,940 for the calendar year, a fresh ten-year high. Mega bankruptcies (companies with over $1 billion in reported assets) ran at 32 over the trailing twelve months ending mid-2025, up from 24 the year before. And on the out-of-court side, liability management transactions kept setting new records, with advisors on track to exceed the 46 completed deals booked in 2024.

For students preparing for restructuring interviews, the macro picture matters because every interviewer at PJT, Houlihan Lokey, Evercore, Lazard, and Moelis will expect candidates to know the shape of the market they are trying to enter. The question "what is going on in restructuring right now?" is asked in nearly every Rx interview, and a strong answer needs the volume data, the sector concentration, the marquee cases, and a clear thesis on where the next wave is forming. This article is the section opener for the market intelligence chapter and walks through each of those layers in turn.

The headline number is straightforward. Total bankruptcy filings across all chapters rose 11% in calendar year 2025. Inside that figure, commercial Chapter 11 filings reached 7,940 for the year, edging up from 7,893 in 2024 and marking the highest level since the post-financial-crisis cycle. Subchapter V elections (the small-business reorganization track that was made permanent in 2024) jumped 11% to 2,446, reflecting the fact that distress has worked its way down-market into smaller operators that would have liquidated quietly in prior cycles.

Two layers below the headline number tell the more interesting story:

The drivers behind the 2025 surge are reasonably clear in the data. Cornerstone Research found that 61% of mega-bankruptcy first day declarations cited reduced demand and increased costs tied to elevated inflation. Nearly half (48%) cited "challenges in the regulatory, legal, and policy landscape," most often involving renewable and clean-energy policy or international trade and tariffs. The macro story is a K-shaped economy where capital-light, cash-generative businesses are healthy while leveraged, asset-heavy, and import-exposed names struggle to refinance debt that was issued at much lower coupons.

Mega Bankruptcy

A Chapter 11 filing by a debtor with over $1 billion in reported assets at the time of filing. Cornerstone Research and the Federal Judicial Center both use this threshold to track large-corporate bankruptcy activity, and it is the cohort that drives most of the high-fee mandates competed for by PJT, Houlihan Lokey, Evercore, Lazard, and Moelis.

If 2025 had a defining feature, it was concentration. Real estate, consumer goods, and the combined energy and industrials cluster accounted for roughly 80% of all Chapter 11 activity, according to PwC's restructuring outlook tracking. Each of those sectors had its own distinct story.

Commercial real estate: CRE maturity wall and office obsolescence

Commercial real estate carried the heaviest tail. CMBS delinquency rates climbed to 7.29% by year-end, and roughly $957 billion of commercial real estate loans matured in 2025. Office properties in particular faced a structural reset rather than a cyclical dip, with valuations on Class B and Class C towers in major metros down 40% to 60% from pre-pandemic peaks. Multifamily, a sector that looked safer at the start of the year, ran into floating-rate refinancing problems as syndicated bridge loans came due at rates two to three times higher than the original underwrites.

Consumer and retail: the Chapter 22 cohort grows

Consumer-facing retail and consumer goods sat in second place. Rite Aid filed for Chapter 11 on May 5, 2025, less than two years after its prior October 2023 filing, putting it in the small but growing cohort of "Chapter 22" repeat filers. Forever 21 carried roughly $1.58 billion of debt into its 2025 case after 41 years in the U.S. market. Joann filed with assets and liabilities both in the $1 billion to $10 billion range, ultimately running a going-concern auction that converted to liquidation in late February.

Energy and industrials: the First Brands fraud filing

Energy and industrials together made up the third major bucket. The notable name in industrials was First Brands Group, the auto parts supplier that filed on September 28, 2025, in the Southern District of Texas with liabilities exceeding $10 billion. The First Brands case included approximately $6.1 billion in on-balance-sheet debt (with first-lien term loans alone exceeding $4.6 billion), more than $2.3 billion in off-balance-sheet inventory and lease facilities, and an alleged $2.3 billion factoring fraud that triggered a Department of Justice criminal investigation and the resignation of founder and CEO Patrick James. An ad hoc cross-holder group provided $1.1 billion in debtor-in-possession financing.

The in-court Chapter 11 docket only tells half the story. The other half lives in the liability management transaction (LMT) market, where issuers and creditor groups restructure debt outside of bankruptcy through uptier exchanges, drop-down financings, double-dips, and consensual exchange offers. The 2024 tape closed with 46 completed LMTs, a record. The 2025 tape, through the first half, registered 27 transactions with restructuring advisors on track to exceed the prior-year total.

The mix shifted as well. Through 2023 and into 2024, non-consensual transactions (the so-called "creditor-on-creditor violence" trades exemplified by Serta Simmons, Mitel, Wesco, and Incora) dominated headlines. In 2025, after the Fifth Circuit's December 2024 Serta ruling cast doubt on the open-market-purchase exception that powered many uptier exchanges, the market shifted decisively toward consensual structures backed by cooperation agreements among lenders. By Q3 2025, more than 70% of completed LMTs included some form of multi-lender cooperation framework, a complete inversion of the 2022-2023 pattern.

For a full treatment of how each LMT structure works, see Section 4 on Liability Management Transactions. The point for the macro picture is that the out-of-court channel is now the dominant venue for upper-middle-market and large-cap distressed restructurings, and the question of when a deal goes in court versus stays out of court has become the first strategic decision in nearly every Rx mandate.

Three forces did most of the work in producing the 2025 surge. The first is the reset in interest rates that began in 2022. Companies that issued debt at 3% to 5% coupons during the 2020-2021 zero-rate window are now refinancing into a 7% to 9% loan market, and many cannot service the higher coupons even with strong operating performance. This dynamic is sometimes called "good company, bad balance sheet" and explains why a meaningful share of 2025 filings involved businesses with positive EBITDA but unsustainable debt loads.

The second driver is sector-specific structural change. Commercial real estate is digesting a permanent reduction in office demand. Retail is digesting another wave of e-commerce share-shift. Healthcare is digesting reimbursement compression. Each of these trends would have produced distress on its own; layered on top of higher rates, they produced a coordinated wave.

The third driver is policy. The 2025 tariff regime, which expanded materially across multiple categories beginning in March 2025, hit import-dependent manufacturers and consumer-goods importers directly. Cornerstone Research's finding that 48% of mega filings cited regulatory or policy headwinds is largely a tariff and clean-energy policy story.

Looking forward, the 2026 picture splits along two questions. First, will defaults rise, fall, or stay flat? Second, what does the maturity wall force into the system regardless of the default rate?

The forecasters disagree on the first question. Fitch projects U.S. leveraged loan defaults to ease into the 4.5% to 5% range by year-end 2026 and high-yield bond defaults to fall into the 2.5% to 3% range. Moody's takes the opposite view on loans, projecting the leveraged loan default rate to peak around 7.9% in Q1 2026 before drifting back to roughly 7% through year-end. Moody's spec-grade default forecast is more constructive, projecting a decline from 5.3% in October 2025 to 3.0% by October 2026. S&P Global projects the U.S. high-yield default rate to fall to 4.25% by June 2026.

A subtler metric matters more for restructuring desks: the all-in distress rate that includes payment defaults, distressed exchanges, and LMTs combined. Mid-2025 readings put the distressed-inclusive rate at 4.37% of issuers (tracked by issuer count for U.S. leveraged loans), well above pre-pandemic levels and the rate that actually maps to restructuring desk pipeline. A candidate quoting only the narrow payment-default rate misses roughly half of where the work actually sits.

The maturity wall question is less ambiguous. Roughly $580 billion of loans in the Morningstar LSTA US Leveraged Loan Index and approximately $625 billion of high-yield bonds mature between 2027 and 2029, for a combined $1.2 trillion that has to clear the market in a roughly thirty-six-month window. Even if default rates ease, the volume of refinancing activity guarantees a steady stream of stressed credits that need amend-and-extend, exchange offers, or full restructurings. PitchBook's distressed credit team frames 2026 as a year of bifurcation: strong issuers refinance cleanly, weak issuers cannot, and the gap widens.

The FTI Consulting 2026 leveraged loan market survey captures the practitioner consensus: 58% of respondents expect defaults and workouts to increase slightly versus 2025, and another 19% expect them to increase substantially. Together, that is more than three-quarters of survey respondents predicting more distress in 2026 than in 2025.

The 2020-2023 era of non-consensual LMTs

One of the most consequential shifts of 2025 is structural rather than cyclical, and it is worth understanding because it will define mandates well into 2026 and beyond. Through the 2020-2023 window, non-consensual liability management transactions dominated the upper-middle market. Issuers and a majority lender group could execute uptier exchanges or drop-down financings that subordinated minority lenders, often with zero advance notice. Serta Simmons in 2020, TriMark in 2020, Boardriders in 2020, Mitel in 2022, Wesco in 2022, and Incora in 2022 are the canonical cases.

How the December 2024 Serta ruling reset the structure

The December 2024 Fifth Circuit decision in Serta unwound the legal foundation underneath those structures, ruling that the open-market-purchase exception on which most uptier exchanges relied did not cover privately negotiated exchanges with a majority creditor group. The market response was immediate. Beginning in Q1 2025, lenders started signing cooperation agreements before any LMT proposal landed, contractually binding themselves to act as a block and negotiate consensually with the borrower. By Q3 2025, more than 70% of completed LMTs included a cooperation framework, and the share of pure non-consensual transactions had collapsed to single digits.

What it means for Rx mandates: slower deals, higher fees

The implications for Rx mandates are concrete. Borrower-side bankers now spend the early innings building consensus across a steering committee rather than identifying a willing majority and racing to close. Creditor-side bankers spend more time organizing ad hoc groups before the borrower formalizes a proposal. The cooperation era has slowed transaction speed (most 2025 LMTs took four to seven months from initial outreach to close, versus the six to ten weeks typical of the 2021-2022 wave) but raised the technical complexity, which has pushed advisory fees higher per mandate.

Beyond the four headline filings discussed earlier, several additional 2025 cases will appear in interview questions and reading lists for the foreseeable future. Spirit Airlines, which exited an earlier 2024 prepackaged bankruptcy, returned to court in August 2025 for a second filing tied to ongoing operating losses and a failed merger attempt with JetBlue. Big Lots completed a free-fall filing in September 2024 that converted to a Section 363 sale with going-concern bidder Nexus Capital, only to see Nexus walk away in early 2025 and force a wind-down liquidation, an outcome that became a textbook case study in how stalking horse bids can fail mid-process.

The TTAM Research Institute purchase of 23andMe out of bankruptcy in late 2025 for $305 million in cash provided one of the year's most distinctive deals, structured as a non-profit acquirer purchasing genetic testing assets with privacy-related restructuring covenants drafted into the sale order. Tupperware Brands closed a credit-bid sale to its lender group with $732 million of secured claims rolling into the post-emergence equity. Hertz, in a smaller and quieter mandate, priced an upsized $375 million exchangeable senior notes offering in 2025 to refinance maturing 2026 paper out of court.

The restructuring market's 2025 surge translated directly into advisor mandate volume. According to Octus (formerly Reorg) tracking, the number of companies engaging restructuring advisors in 2024 climbed 35% year-over-year over 2023, and 2H 2024 mandates ran 23% above 1H 2024 (also 27% above the prior-year period). Through Q1 2025, the league table picture stabilized into a clear hierarchy.

On the financial advisory side, PJT Partners led investment banker mandates by approved fees in early 2025, taking approximately 7% of total advisor fees with $158.6 million, followed by Perella Weinberg Partners with $77.6 million and Guggenheim Securities with $42.5 million. Houlihan Lokey ran the highest mandate count across both debtor and creditor sides combined, with 57 active engagements through year-end 2024. The legal-side league tables put Kirkland & Ellis at 68 engagements, with FTI Consulting at 42 consulting engagements. The fee dispersion across advisors (a mid-cap firm earning $2-5 million versus PJT's $158.6 million in approved fees) reflects how concentrated the high-end mandate flow has become at the top of the league table.

The 2024-2025 LMT wave produced one of the starkest recovery dispersion patterns in distressed credit history. Issuers emerging from bankruptcy after a prior LMT delivered weighted-average aggregate recoveries of approximately 47% on original first-lien claims, versus 57% for issuers that did not execute prior LMTs. The roughly 10 percentage point gap reflects the value transfer that happened during the LMT itself.

Within individual LMTs, the gap between participating and non-participating creditors was much wider. In the Cineworld restructuring, prepetition priming term loan facilities recovered 100% while non-participating legacy term loan facilities recovered an estimated 3.4%, a roughly 96 percentage point gap. In the Diebold restructuring, superpriority term loan tranche obligations recovered 100% while non-participating first-lien lenders recovered approximately 38%. An aggregate analysis of 38 LMT-touched restructurings tracked since 2017 found that the disfavored lenders' recoveries were depressed by approximately 70% versus what they would have recovered absent the LMT, a hit of roughly 40% of par value.

While the US tape was the largest single restructuring market globally, several international developments shaped the 2025 picture and will matter for 2026 pipeline.

The English Restructuring Plan (Part 26A of the UK Companies Act 2006) continued to dominate large-cap cross-border restructurings, with 35 companies registering restructuring plans by end of 2024 and at least 10 restructuring plans moving through UK courts in Q1 2025 alone. The Restructuring Plan offers cross-class cramdown and a 75% voting threshold, making it the closest non-US analog to Chapter 11 cramdown.

The Dutch Wet Homologatie Onderhands Akkoord (WHOA) became a "standard tool" rather than a novelty, according to Dutch government evaluations. WHOA approval requires only two-thirds of the value of votes cast in a class, a lower threshold than either the UK Restructuring Plan (75%) or US Chapter 11 (typically two-thirds in dollar amount and majority in number). The McDermott International restructuring, implemented through a parallel WHOA and UK Restructuring Plan after a prior US Chapter 11, became the canonical example of complex coordinated cross-border restructuring.

Germany's StaRUG (Unternehmensstabilisierungs- und -restrukturierungsgesetz), France's accelerated safeguard procedure, and Italy's reformed concordato preventivo each added to the European toolkit. The EU's Restructuring Directive (Directive 2019/1023) provides a common framework that member states have adapted into national law, producing a more competitive landscape for cross-border restructuring venue.

WHOA

The Wet Homologatie Onderhands Akkoord, the Dutch Restructuring Plan introduced in January 2021. The WHOA combines elements of the English Scheme of Arrangement, US Chapter 11, and the EU Restructuring Directive. Approval requires a favorable vote of two-thirds of the value of votes cast in a class. The threshold is lower than under both the UK Scheme of Arrangement and US Chapter 11, making it an attractive cross-border restructuring tool. The first government evaluation in 2024 confirmed WHOA's success as a "standard tool" rather than a novelty.

For interview purposes, the international toolkit matters because cross-border restructurings are increasingly common and because European tools (particularly the UK Restructuring Plan and Dutch WHOA) are sometimes used in parallel with US Chapter 11 to bind creditors across multiple jurisdictions. McDermott is the textbook example.

Translating the macro picture into desk-level activity, three trends will define 2026 mandates. First, the volume of work will stay high or grow. Even Fitch's more constructive forecast leaves loan defaults around four to five percent of the index, which translates into a steady flow of restructuring mandates across both in-court and out-of-court channels.

Second, the work will be technical. The post-Serta shift to consensual LMTs requires more creditor coordination, more steering committees, and more cooperation agreements. The post-Purdue elimination of non-debtor releases reshapes any case with mass-tort or co-defendant exposure. The cooperation-era playbook means that bankers spend more time on creditor-side mandates than they did in the 2018-2022 window, and the technical bar on each mandate has risen.

Third, the geography of distress will broaden. CRE will remain a dominant theme, but private-credit-funded middle-market companies (which sit largely outside the broadly syndicated loan index) are entering distress at rising rates, and the workout playbook in private credit is still being written. Direct-lender clubs, single-creditor restructurings, and bilateral negotiations are increasingly common alternatives to the public-market dynamics that defined the 2022-2024 cycle.

For interview prep, the practical takeaway is that strong candidates can speak fluently about both the in-court (Chapter 11) and out-of-court (LMT) tapes, name the marquee 2025 cases (First Brands, Rite Aid, Forever 21, Joann), cite at least one default-rate forecast (Fitch's 4.5% to 5% loan default range or Moody's 7% loan default view), and articulate a coherent thesis on the $1.2 trillion maturity wall. The next seven articles in this section drill into each piece of that picture, from the 2025 filings surge through the 2026 pipeline.