FT : ‘Leveraged to the hilt’: PE-backed firms hit by wave of bankruptcies

‘Leveraged to the hilt’: PE-backed firms hit by wave of bankruptcies
High interest rates and thrifty consumers pushed record number of portfolio companies into bankruptcy last year

Higher interest rates and lower consumer spending are squeezing debt-laden companies backed by private equity groups, forcing them to either restructure through bankruptcy or buy time to recover via out-of-court settlements with creditors.

The stress on private equity-backed companies shows up starkest in a recent study by S&P Global Market Intelligence, which shows that a record number of 110 private equity and venture capital-backed companies filed for bankruptcy in 2024.

These failures, concentrated in the consumer and healthcare sectors, show how even as the US unemployment rate remains low and the S&P 500 ploughs ever higher, certain corners of corporate America are hurting, with many companies struggling to survive under the pressure of high interest rates, lower consumer spending and crippling stacks of debt.

“I think the initial reason why companies file for bankruptcy when they’ve been a subject of an acquisition by private equity, is there’s too much debt,” said Lawrence Kotler, a law partner that focuses on bankruptcy at Duane Morris. “Everything is leveraged to the hilt.”

High interest rates took a toll across the US corporate landscape last year, with bankruptcies hitting their highest level since the financial crisis. But PE and VC-backed companies have been particularly hard hit, with portfolio companies comprising a rising — and record — share of corporate bankruptcies, according to S&P data.

The data, which dates back to 2010, includes private companies with majority private equity ownership and it also includes some publicly traded companies with minority strategic investments by private equity shops.

A narrower analysis by FTI Consulting focused on larger private equity filings does not show a similar rise, but notes the out-of-court tactics suppressing the number of private equity-related bankruptcies in recent years.

Overwhelming debt loads were made tougher to shoulder by the Federal Reserve’s rate hikes, which directly affected the cost of paying back floating-rate loans taken out by private equity-sponsored portfolio companies. Those high interest rates have now remained elevated for nearly three years, and the odds of relief in the form of aggressive cuts have diminished.

The software company ConvergeOne, taken private by CVC Capital Partners in 2019, exemplifies the trouble facing private equity portfolio companies.

The software group, known for its cloud and cyber security products and now called C1, went on a buying spree in the years following its last takeover, taking on debt to snap up seven companies just before interest rates started to rise.

In the end, the debt proved too much to sustain. Last spring, ConvergeOne filed for bankruptcy with just $21mn in the bank, and $1.8bn in debt. CVC declined to comment, and ConvergeOne did not respond to a request for comment.

“Consumers search for ways to find value when inflation bites,” said Mike Best, a high yield portfolio manager at Barings. “The market is littered with bankruptcies in the consumer products and retail sectors,” he added.

While most private equity-backed companies fail from a combination of too much debt and operational troubles, some cases stir up acerbic allegations. One prime case: Instant Brands, which makes the popular Instant Pot pressure cookers, has emerged as one of those hotly contested corporate failures.


In 2019, Cornell Capital bought Instant Brands for just over $600mn. By 2023, the kitchen appliances maker had filed for bankruptcy. Shortly after the company sought court protection, creditors accused Cornell of siphoning large amounts of cash from the company’s coffers.

Creditors sued Cornell Capital and certain executives in November for having “plundered the portfolio company” by taking out a $345mn dividend for its investors, which the complaint alleges left Instant Brands insolvent.

A trial over the allegations is scheduled to start later this year. A spokesperson for Cornell Capital in a statement called the lawsuit’s allegations “baseless attacks” and disputed that the dividend recapitalisation led to Instant Brands’ bankruptcy, instead citing “uncontrollable macroeconomic events.”

Meanwhile, out-of-court manoeuvres to stave off insolvency, commonly called liability management exercises or LMEs, have shot up as companies seek to avoid Chapter 11.

“Private equity sponsors have a heightened interest in LMEs,” David Meyer, head of law firm Vinson and Elkins’ restructuring and reorganisation group, said in an interview. “The primary focus is: how can we address a situation out of court?”

While popular, the solution rarely lasts. Just under half of respondents to an AlixPartners survey from October described liability management exercises as successful. Only 3 per cent said they turned out to be permanent fixes.

Despite efforts to stave off insolvency, some companies have earned the dubious distinction of entering “Chapter 22” or “Chapter 33” proceedings, a sobriquet indicating their second or third successive bankruptcy.

One of the most recent such cases is Joann, an Ohio-based fabrics and sewing supplies retailer with hundreds of locations, thousands of employees and two separate bankruptcy filings in the past year.

Joann was taken private for $1.6bn in 2011 by private equity firm Leonard Green and Partners. The firm then took Joann public in 2021 while remaining its largest shareholder.

Business boomed in 2020 thanks to the popularity of crocheting and other crafts during Covid-19 lockdowns. But sales slowed as the pandemic ebbed, higher rates more than doubled the company’s interest payments and supply chain issues snarled its inventory — even as 96 per cent of its stores were cash flow positive, according to filings.

The company filed for bankruptcy in March. It emerged a month later after slashing half of its $1bn in debt, but ultimately returned to Chapter 11 earlier this month, this time blaming the difficulty to keep vendors shipping products. Joann and Leonard Green did not respond to requests for comment.

“The tide has gone out, and a lot of boats are rocking over,” said Jerrold Bregman, a partner at BG Law. Private equity companies prefer to sell or float their holdings at a profit, he added. “Typically, all they’re looking to do is get to a liquidity event and make some money.”

FT : WHSmith in talks to sell its high street chain

WHSmith in talks to sell its high street chain
Company says it is exploring strategic options but there is no guarantee an agreement will be reached

UK retailer WHSmith is in talks to sell its high street chain more than two centuries after it opened its first shop in London.

The company, which has been focusing on its outlets in airports, hospitals and train stations in recent years, confirmed on Saturday that it was “exploring potential strategic options”, including an outright sale of about 500 stores.

WHSmith, a high street stalwart known for its stationery and books, is in talks with several prospective buyers and a deal could be reached in the coming months, according to a person familiar with the process.

However, the retailer cautioned “there can be no certainty that any agreement will be reached”.

Over the past decade WHSmith has become an international travel retailer through acquisitions such as a $400mn deal to buy Marshall Retail Group in the US in 2019 and paying £155mn for InMotion, another US retailer of technology products, in 2018.

The move, which was first reported by Sky News, marks a watershed moment in the history of the UK high street.

WHSmith was established in 1792 as a family-run newsagent, and a few decades later it opened the first travel retail store in London’s Euston station in 1848.

Its high street division, albeit profitable and cash generative, has had to adapt to a changing retail landscape characterised by a shift to online shopping and increasing day-to-day business costs.

At the same time, many established chains such as Debenhams and Topshop have disappeared from the high street.

WHSmith’s travel business now has more than 1,200 stores across 32 countries, and it accounts for three-quarters of the group’s revenue and 85 per cent of its trading profit. 

WSJ : Americans Are Still Spending, and Rising Airfares Aren’t Scaring Them Off

Americans Are Still Spending, and Rising Airfares Aren’t Scaring Them Off
Pricing power is shifting toward airlines and other companies that provide services consumers crave

Get ready to pay more for airline tickets.

U.S. airlines are charging higher fares and signaling that business and leisure travel demand should remain strong this year. It is the latest sign of how companies are expecting consumers to pay more for services and items deemed desirable.

“The U.S. consumer is financially healthy and continues to prioritize spending on experiences,” Delta Air Lines DAL -0.40%decrease; red down pointing triangle Chief Executive Ed Bastian said this month.

Prices for the cheapest U.S. flights are up 12% this month from a year earlier, according to Hopper, a flight comparison and booking app.

Other companies offering in-demand services are also betting that higher prices won’t turn off consumers.

Netflix said Tuesday it would raise prices for U.S. subscribers, expecting that households will be willing to absorb the higher fees despite several increases in recent years. The price of a premium subscription, which had already jumped more than 25% from $17.99 a month in 2021, increased another $2 a month.

Analysts expect steady demand also will allow hotels and cruise companies to drive prices higher.

At the same time, some makers of consumer goods and staples are finding a rockier reception to price increases.

“On the services side, you’ll have a little bit more pricing power than on the goods side,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “We’re still experiencing a little bit of a hangover from all the stuff that we bought here during the pandemic.”

Airfares plunged in the early months of the Covid-19 pandemic, only to soar in 2022, when airlines couldn’t add flights quickly enough to keep up with the frenzied urge to travel. Then prices tumbled when airlines expanded service and flooded into popular routes. Now airlines are constraining supply and lifting prices.

Airlines expect those higher prices to lift their financial results. Revenue at the largest U.S. airlines is forecast to hit new highs this year.

“We’re encouraged by the setup as we head into 2025,” Andrew Harrison, Alaska Airlines’s chief commercial officer, told investors Thursday. “Things are looking really good as we sit here today.”

Airlines are regaining pricing power after a glut of cheap seats weighed on domestic fares. Last summer, ticket prices slid at a time of year when they typically reach their apex. That trend made it harder for carriers to cover their own rising costs, including those associated with labor contracts they signed in recent years.

Instead of trying to fill seats at cut-rate prices, carriers slowed their growth, or in some cases shrank, to preserve profits.

Spirit Airlines, which filed in November for Chapter 11 bankruptcy, ended the year flying 20% less than it did in the final months of 2023. Southwest Airlines, facing pressure from an activist investor agitating for the airline to produce bigger profits, has pledged to moderate growth in the coming years.

Other factors including delayed plane deliveries are also keeping airlines from expanding more aggressively. In the first quarter, U.S. airlines are planning to increase domestic flying capacity by 1.6% from a year earlier, according to data from Cirium, a slowdown from the 3.5% growth rate in last year’s first quarter.

Andrew Nocella, chief commercial officer at United Airlines, said this month that domestic pricing is improving because of accelerating business travel and its competitors’ cutbacks on unprofitable flying. There are fewer fare sales, and discounts aren’t as steep, he said.

The airfare component of the consumer-price index rose 3.9% in December from the prior month on a seasonally adjusted basis—its fifth consecutive monthly gain.

Inflation-weary travelers are feeling the pinch, even as high-income households continue to shell out for flights and clamor for higher-end experiences.

In a survey of more than 5,000 travelers last year, Atmosphere Research Group found that a quarter of respondents reported annual income between $50,000 and $75,000, down from 28% a year prior.

“These are the people being hit the hardest by the higher cost of everyday living,” said Atmosphere President Henry Harteveldt. “People with the most limited incomes are not able to afford to travel like they once were.”

Discount airlines that have long catered to those customers are adjusting their business models to attract more consumers willing to pay up for extras. Most fliers are continuing to spend, airlines have said, and carriers including Frontier Airlines, Spirit, JetBlue and Southwest are hoping to appeal to them with roomier seats, or bundles that also include such amenities as better snacks and earlier boarding.

“We’re not worried about where fares are at—we think the consumers are willing to pay for a really good product,” said Devon May, chief financial officer at American Airlines. Fares “continue to be a bargain relative to a lot of other consumer goods or services,” he said.

9to5 : Apple confirms CarPlay 2’s delay, but says work continues with ‘several’

Apple confirms CarPlay 2’s delay, but says work continues with ‘several’ automakers

Three weeks into 2025, Apple has now updated its CarPlay website with one small, but noteworthy change: CarPlay 2 is no longer promised to arrive in 2024, thus confirming the delay.

Apple, however, says its work on next generation CarPlay continues…

Updated CarPlay site removes promised launch date, but Apple confirms ongoing development
Apple’s plans to ship CarPlay 2 (‘next generation of CarPlay’) have hit an official delay.

Apple’s website has been updated to remove any reference to a 2024 deadline (first seen by MacRumors).

In a statement to 9to5Mac, however, Apple said that it is still working with “several automakers” to implement the next generation CarPlay experience:

The next generation of CarPlay builds on years of success and insights gained from CarPlay, delivering the best of Apple and the automaker in a deeply integrated and customizable experience. We continue to work closely with several automakers, enabling them to showcase their unique brand and visual design philosophies in the next generation of CarPlay. Each car brand will share more details as they near the announcements of their models that will support the next generation of CarPlay.

All throughout 2024, Apple’s CarPlay site claimed that the first models with CarPlay 2 would arrive in 2024.

Even in December, the language remained unchanged, leading some (myself included) to believe a launch announcement would arrive just before the deadline passed.

The same thing had played out the prior year, for example, when Apple promised the first CarPlay 2-supporting automakers would be announced. They kept that promise, just barely, with a December news drop.

But in 2024, Apple’s new CarPlay deadline came and went with no change.

What’s next after CarPlay 2’s delay?
Plenty of signs exist that Apple’s still working on its new CarPlay system, beyond the statement shared above—but it’s just not ready yet.

Personally, I’d love to see Apple take CarPlay in a new direction by building CarPlay 2 tools into the existing system. That way, millions of existing CarPlay users can benefit from the upgrades.

For now though, all we know is that Apple and its automaker partners are continuing to develop the next generation of CarPlay—and all we can do is wait.

Are you interested in getting CarPlay 2, or would you prefer that the first CarPlay just got better? Let us know in the comments.

WSJ : Musk-Altman Feud Reaches White House With Battle for Trump’s Approval

Musk-Altman Feud Reaches White House With Battle for Trump’s Approval
The president’s embrace of rival Sam Altman sends a not-so-subtle message to the Tesla CEO

President Trump and Elon Musk aren’t an exclusive item.

That point was clear this week when the president welcomed OpenAI Chief Executive Sam Altman to the White House on the second day of Trump 2.0—a visit that left “First Buddy” Musk publicly fuming.

Abraham Lincoln had his “team of rivals.” And, it appears, Trump is going to have dueling entrepreneurs with big dreams competing for his attention and adoration.

The long-running feud between Musk and Altman reached uncharted waters of the White House as the tech billionaires try to sell the president and America on their sci-fi dreams for the future: traveling to Mars and creating godlike AI.

Altman, locked in a legal battle with Musk over OpenAI, made a savvy move to ingratiate himself and his AI company with Trump. The step was an apparent end-run around Musk, who has been working closely with the president, including toiling this week from a West Wing office.

At a time when other Big Tech Bros have made a bet that kowtowing to Musk while currying favor with Trump was the safest play, Altman made a bolder move.

He offered Trump one thing that the president is known to love from business leaders: headline-grabbing announcements about big American investments.

Nothing was bigger, however squishy in detail, than what Altman had Trump announce on Tuesday at the White House: a $500 billion plan—dubbed Stargate—to build infrastructure needed to make Altman’s AI dreams real. Technology that, Altman said, holds the promise of someday helping cure diseases at unprecedented rates.

“We will be amazed at how quickly we’re curing this cancer and that one, and heart disease,” he said.

Altman was joined by partners in the project, SoftBank CEO Masayoshi Son and Oracle Chairman Larry Ellison, for what was called the beginning of a “golden age,” language that echoed from Trump’s own inauguration speech a day earlier.

Trump called Altman “by far the leading expert, based on everything I read,” in AI. In response, the CEO credited the president with the project—even though parts of it began long before this week.

“I think this will be the most important project of this era,” Altman said. “To create hundreds of thousands of jobs, to create a new industry centered here, we wouldn’t be able to do this without you, Mr. President.”

The public embrace of Altman comes with a risk of angering Musk, whose own response, in turn, threatened angering the White House. A real dance-with-dragons situation.

The Tesla and SpaceX chief executive hasn’t been shy in saying he turned, in part, to supporting Republicans after feeling slighted by former President Joe Biden’s White House embracing rival automakers and their suggestion that General Motors was a leader in making electric vehicles. For years, Musk, who appointed himself Technoking, has also fashioned himself as a leader in artificial intelligence, warning governments around the world about the dangers of AI.

So maybe it wasn’t surprising that Musk was unhappy to see his nemesis at the White House.

His public reaction, however, roiled the chattering class in Washington, who clearly hadn’t been closely following the public feud between Musk and Altman. The two have had a war of words that’s gripped Silicon Valley as OpenAI’s breakthroughs have garnered attention and Musk has fought back with his own competing AI startup, xAI.

In a string of X postings, Musk undermined the White House announcement with just about every accusation possible—from calling Altman a swindler to questioning his loyalty to the president and claiming the group lacked funding for Stargate.

“This is great for the country,” Altman wrote at one point. “i realize what is great for the country isn’t always what’s optimal for your companies, but in your new role i hope you’ll mostly put [America] first.”

Trump’s second administration has, so far, been fueled in large part by dreams—the implicit promise that comes with the slogan “Make America Great Again.” He rode into office with an atypical mixture of populists and elites who’ve already shown fraying relations after November’s victory as they publicly bicker about the direction of Trump 2.0 from government spending to immigration policy.

Amid some of the biggest internal flare-ups has been Musk using his powerful bully pulpit to help shape public debate and media coverage.

This week, Trump gave supporters plenty to snack on during his inauguration celebration: His talk of planting the U.S. flag on Mars had Musk cheering. Then there were executive orders to appeal to those dreaming of cryptocurrency, cracking down on illegal immigrants, freeing J6 “hostages,” even those who pine for a “Gulf of America.”

“If we work together, there is nothing we cannot do and no dream we cannot achieve,” Trump said after being sworn-in as Musk sat behind him on stage at the U.S. Capitol.

The challenge comes when those dreamers run into each other, as they did with Musk and Altman.

Musk has built his fortune and reputation on selling his vision for the future to investors, customers and, this past fall, voters. At the core of Musk’s vision is traveling to Mars.

He celebrated Trump’s new term as a big step toward achieving that goal. “Can you imagine how awesome it will be to have American astronauts plant the flag on another planet for the first time?” Musk said at a post-inauguration rally.

The latest episode of Musk stepping on a Trump move renewed a question among insiders from Sand Hill Road in Silicon Valley to K Street in Washington, D.C.: Is this finally the time his public antics cracked their nascent bond?

The Trump-Musk relationship, after all, is still fairly new. After a publicly contentious relationship, Musk only publicly endorsed Trump in July, pouring more than $250 million into helping get him elected as well as wielding his social-media influence for the cause.

For now, it would seem, Trump understands Musk, big egos and personal grudges.

After almost two days of tension, Trump weighed in Thursday when asked if he was bothered by Musk’s actions. The president shrugged it off, saying he continues to talk to each man.

“He hates one of the people in the deal,” Trump told reporters of Musk, adding, “I have certain hatreds of people, too.”