The US corporate landscape is facing a difficult period, likely characterized by financial distress and a wave of corporate restructurings. Many companies are struggling with persistent cash flow problems, mounting debt, and dwindling prospects for meeting optimistic earnings projections— unwelcome symptoms of an era of low interest rates and excessive risk-taking, which fueled growth but created unsustainable financial conditions.

Looking past the period of difficult adjustment ahead, the opportunity to reset capital structures and operations should unleash a powerful wave of US commercial activity—particularly in the middle market. While the price of revitalizing the corporate economy may be dramatic short term, tackling these much-needed restructurings should set the stage for a golden era of growth that will create jobs and a thriving future across sectors.

The roots of today's problems date back to the 2008 financial crisis. To avoid a painful financial adjustment after the mortgage crisis, interest rates were kept abnormally low. That "easy money" policy led to a surge in leveraged buyouts (LBOs) and direct lending. As a result, US nonfinancial corporate debt ballooned from $6.9 trillion in 2008 to $13.7 trillion in 2024.

Some of this capital enabled investment and growth initiatives. In other instances, it provided grist for dividends, higher LBO prices, and misallocation of resources. Much of it has become a crippling burden for borrowers facing rising interest rates and a difficult operating environment.

Inflation has driven up labor and materials costs and squeezed profit margins. Simultaneously, interest rate hikes have significantly increased borrowing costs. This combination is especially problematic for middle-market companies, many lacking pricing power due to their place in the value chain. These businesses are funneling dwindling revenue into servicing unsustainable debt, leaving little room for growth or innovation.

Companies unable to stabilize margins or manage working capital are increasingly turning to bankruptcy protection or engaging in out-of-court restructuring. Corporate bankruptcy filings hit a 14-year high in 2024. The nearly $600 billion in troubled loans on bank balance sheets, as reported in the recent 2024 Shared National Credit Program review, underscores the severity of the problem. Unaddressed, this distress could cause or worsen a broader economic downturn.

Investors can position themselves at the forefront of the next great expansion in American business.

This “pandemic” of over-indebtedness has distorted corporate priorities, creating a myopic focus on financial liabilities at the expense of strategic growth, research, and employee development. Companies are struggling with outdated processes, inadequate technology, and underperforming products. These issues, overlooked during zero interest rates, are now exacerbating corporate strain.

The challenges require more than simply rearranging debt. The only viable path is through comprehensive financial and operational restructuring, beyond the ineffectual “liability management” favored by most market practitioners.

Adding to this complexity is a newly installed US government aggressively promoting unconventional policies. Dramatic yet peripatetic policy change has introduced significant uncertainty into the operating environment and will likely have unanticipated impacts on borrowers and lenders even if the new policy objectives are fundamentally sound.

To address the accumulated problems of overborrowing, a difficult macroeconomic environment, and an activist government, corporate restructuring offers a promising path forward. By renegotiating debt, companies can ease their immediate interest burden while creating room for critical reinvestment in core operations. A holistic approach integrating financial restructuring with operational revitalization enables the reassessment of strategic priorities and embraces sustainable, value-driven practices.

This approach has precedent. After the direct lending crisis in the 1980s, the Resolution Trust Corporation played a key role in restructuring the excessive indebtedness created by the Savings & Loan industry, helping set the stage for the 1990s economic boom. Similarly, restructurings in telecom, media, and petrochemicals in the early 2000s enabled strong growth in subsequent years. While current distortions may be more severe, the transformation potential is just as great.

Investors now face a compelling opportunity to deploy capital into restructurings resulting from recent excesses and a worsening economy. Those who commit resources to turnaround situations will have the opportunity to not only capture significant returns but also contribute to rebuilding the foundation of America's economic engine. The coming wave of corporate restructuring demands specialized expertise and dedicated capital—exactly the resources sophisticated investors can provide. By taking decisive action today, investing in distressed assets, and supporting comprehensive turnarounds, investors can position themselves at the forefront of the next great expansion in American business. Those who recognize this inflection point and move boldly can reap outsized rewards while simultaneously helping to forge a more resilient and dynamic corporate landscape for decades to come.