Corporate Debt Reckoning: April's Surge in Restructurings Signals Brewing Storm

The U.S. corporate debt landscape is undergoing a quiet but significant transformation. In April 2025, financially strained companies restructured a record $3.5 billion in debt through distressed exchanges and liability management exercises (LMEs), a 60% jump from March and the highest monthly total since late 2022. This surge, driven by rising tariffs, inflation, and market volatility, underscores a growing reliance on restructuring to avoid bankruptcy—a trend that may mask deeper vulnerabilities.

The Data Behind the Debt Crisis

The April figures, sourced from JPMorgan, show a steepening trajectory: Q1 2025 restructuring totaled $8.4 billion, nearly double the $4.3 billion recorded in Q4 2024. Meanwhile, the volume of junk bonds trading at yields exceeding 1,000 basis points (bps) over Treasuries soared to $94.6 billion—a 10-month high—representing 7.2% of all U.S. high-yield debt. This segment has expanded by 0.6 percentage points year-over-year, signaling investor skepticism toward companies’ ability to service debt.

S&P Global Ratings’ April report highlighted that default risk for U.S. issuers reached 9.2%, the highest since the 2008 financial crisis. While S&P attributes this to macroeconomic pressures, the data paints a grim picture: nearly one in 10 rated issuers risk default within a year.

Why Companies Are Restructuring—and Why It May Not Work

Companies are favoring LMEs over bankruptcy filings, as these agreements allow them to extend maturities or reduce interest payments without legal proceedings. However, experts warn that such measures are often temporary. Winnie Cisar of CreditSights cautions that LMEs “hinge on assumptions about future profitability that may be overly optimistic.” For instance, restructuring terms often require companies to achieve cost savings or revenue growth within 1–2 years—a tight window in an uncertain economic climate.

Ian Feng of Covenant Review points to trade wars and regional instability as key risks exacerbating corporate stress. If tariffs and supply chain disruptions persist, more companies may face liquidity crises, further fueling restructuring demand.

The Investor’s Dilemma: Risk or Reward?

The surge in distressed debt activity creates both opportunities and pitfalls for investors. High-yield bonds trading at >1,000 bps over Treasuries offer sky-high yields, but their inclusion in portfolios often reflects desperation rather than value. Meanwhile, institutional investors holding these bonds face a stark choice: accept haircuts in restructuring deals or risk defaults.

Conclusion: A Short-Term Fix for a Long-Term Problem

April’s restructuring spike and the 9.2% default risk highlight a corporate sector stretched to its limits. While LMEs buy companies time, they do not address the root causes: inflationary pressures, trade conflicts, and weak demand. With S&P’s default metric nearing double digits and restructuring costs climbing, investors must brace for prolonged market volatility.

Edward Best of Willkie Farr & Gallagher sums it up: “These deals are Band-Aids, not cures.” For now, the focus remains on navigating the storm—until the next wave of defaults tests even the most resilient balance sheets.

Data sources: JPMorgan, S&P Global Ratings, Reuters.