The Halftime Report: A High-Scoring First Half — Or Was It?

If we had to describe the state of restructuring activity during the first half of 2023 in one word, it would be “Whew.” We all knew this year would be a stark improvement for restructurings compared to the dud that was 2022, but few expected the strong and steady flow of monthly Chapter 11 filings that occurred in 1H23. As some economists and other pundits now revisit their recession calls given recent data indicating slowing inflation and a mostly resilient U.S. economy, restructuring activity has proven to be equally resilient so far this year, even in the absence of economic contraction or shock events. Who needs a recession, anyway?

A Year’s Worth of Restructuring Activity in Just Six Months — If the Year Was 2022

The two primary measures of restructuring activity — large (>$50 million) Chapter 11 filings and rated corporate debt defaults, which overlap to some varying degree— both trended favorably in 1H23 (Figure 1), essentially doubling from their respective prior-year comparable totals while nearly matching totals for the entirety of 2022. As we have said previously, this very favorable comparison speaks both to the strength of 1H23 and the modesty of 2022 with respect to restructurings.

There were exactly 100 large Chapter 11 filings in 1H23 compared to 46 filings in 1H22, 103 filings in all of 2022 and 118 in all of 2021. Large filings this year consistently have stayed close to a monthly average of 16, about 50% above the long-term average of 10.5 monthly filings since 2010. Filing totals in 1H23 included 47 filings with liabilities greater than $250 million and 18 filings greater than $1 billion, compared to 24 and 8, respectively, in 1H22, and 44 and 16, respectively, in all of 2022. The healthcare sector accounted for 20% of large filings in 1H23, more than double the next closest industry sector, and healthcare’s 20 filings in the first half already have topped the sector’s 15 filings in all of 2022.

So, in just six months this year, the filing totals for all of 2022 were nearly replicated. Besides this standout comparison, first-half 2023 was the strongest first-half for large Chapter 11 filings in the post-Financial Crisis period aside from 2020, and was appreciably better than any six-month period other than the pandemic year since we began tracking this data in 2016 (Figure 2). Even the comparison to 2020 is respectable, with 100 filings in 1H23 falling short of the 115 filings in 1H20 by just 13%. But it doesn’t nearly feel the way mid-2020 did for restructuring activity, does it? There’s a reason for that.

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