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All right, let's talk about corporate
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bankruptcies. According to N S&P Global
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Report, so far in 2025, we've seen the
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most corporate bankruptcy filings since
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2010. That was after the great financial
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crisis, you remember? Uh, or some of you
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might have been too young. So, uh,
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corporate bankruptcies, according to the
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S&P, are public companies with debt of
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at least 2 million and private companies
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with assets or liabilities of at least
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10 million. I'm not sure why the public
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companies is less than the private. It
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didn't make sense to me, but there must
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be a reason. Uh, these are also called
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large bankruptcies. Here's a chart
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showing you corporate bankruptcies since
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2008. The blue bar is through July. Gray
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bar is the full year. So, uh, we're
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looking at a partial year here,
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obviously, in 2025. We're at 446 large
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bankruptcies, 7 months into 2025, which
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would put us on track for the most since
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2010. And um
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yeah, nothing close to GFC numbers, but
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uh you know, it's not trending well. And
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if you look at corporate bankruptcies
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broken down by month since 2020, you can
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see uh that bankruptcies are increasing
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after the massive rate hike cycle in
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2022 and 2023. So obviously rates has
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something to do with this. What are your
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thoughts, Chimath, on what we're seeing
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here? It's not like super dramatic, but
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it's definitely uh notable.
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Yeah, it's notable, but I think it's
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notable not for the reasons that the
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mainstream media tries to describe it
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in. I read these articles and I was a
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little bit caught off guard because
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initially what it said was the tariffs
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were causing this and I was like
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large companies don't go bankrupt 30 60
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days.
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Yeah. Because of the tariff this makes
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no sense. But the narrative was very
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strong basically trying to paint the
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Trump administration as having caused
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this. So I just started to look into
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this and couple of interesting things to
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note that I the conclusions that I came
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to. I think the most interesting is that
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there were a lot fewer bankruptcies over
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the last four or five years
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than there should have been. And I think
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that there are two reasons. The first
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reason is that you had rates
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artificially suppressed at zero for an
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incredibly long amount of time. And so
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you had all kinds of companies
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able to raise enormous enormous amounts
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of capital that they probably shouldn't
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have been able to or at a minimum should
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have done at much higher rates which
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weren't really there because the poor
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rate was at zero. So what that means is
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that many companies were able to fill
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the reservoir of money and then when the
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core structural business started to
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fail, they had a lot more oxygen in the
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tank to survive a lot longer. So I think
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a lot of what you're seeing and if you
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look Jason at some of these companies
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like Joann's Fabrics and Party City,
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these were businesses that were upside
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down for years.
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Yep. And a number of these right were PE
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buyouts that you know their strategy is
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to saddle them up with a bunch of debt
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too. So that that speaks to what you're
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saying.
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So I think I think the reason why
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bankruptcies are up right now is because
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the reservoir of free money the money
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printer that printed frankly since 2010
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up until about 2021 because you know we
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still gave an enormous amount of money
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in co is finally starting to run out.
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That's number one. But the second is
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that we actually haven't had a process
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of creative destruction in American
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company formation for a while.
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Yeah. Probably since GFC GFC, right? It
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was that
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a similar a similar thing happened at
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that time too, Jamal, right? We had all
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these backed up companies that probably
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should have died and it kind of
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Well, what I think I think what happened
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was like, you know, startups ran out of
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money. There was certain parts of of
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industries that had some trouble, but by
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and large there was no transformational
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or catalyzing M&A that could have
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actually happened and that in part was a
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structural issue because of the way the
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federal bureaucracy reacted to it. Not
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just in the United States to be fair,
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but around the world. And I think when
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you relax those constraints, what you
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can start to see are companies identify
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assets that they want inside of other
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businesses, be much more aggressive in
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getting them. Businesses that are
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floundering, being able to see that
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they're about to run out of money and
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have the confidence to try to do an M&A
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deal to survive. You need all of these
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things to work in lock step for a market
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to be efficient. The market was
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incredibly inefficient since 2010.
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artificially suppressed rates, a
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regulatory regime that, you know,
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disallowed any form of M&A and
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consolidation. Now that those
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constraints are lifted, you're going to
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see a lot of this creative destruction
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work its way through the economy. That's
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one big trend. The other big trend, and
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I think we saw this in Nick, can you
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please find the tweet from Delion where
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he talked about the Chipotle competitor
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that TK launched? I just want to point
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to this because I think this is another
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wave of competition that's going to put
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a bunch of categories of business under
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duress which is you know our friend
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Travis Kalanick who's the founder of
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city what is it called city logistics is
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that what it's called
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yeah cloud kitchens is how
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cloud kitchens okay
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he launched a Chipotle competitor and
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it's apparently totally kick-ass and way
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better than Chipotle and it just starts
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to show that there's an a wave of
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competition that's also coming from
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completely different companies you never
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would have expected going after a bunch
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of these businesses. So if you put these
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two things together, I think you're
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going to see more, not less,
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bankruptcies. But I think the outcome is
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probably positive in that you clean out
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a bunch of businesses that were taking
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up time and resources. You should
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allocate a lot of the human capital that
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are in those companies to different
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businesses. is and I think uh man it's a
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long list of companies but I just want
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to know which one hit you harder forever
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21 or Hooters which one of those
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bankruptcies hit harder for you trying
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to game it out here. Um, I think that we
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should buy Hooters. I mean, we should
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buy Hooters Chim. We should have If you
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have a teenage daughter, if you have a
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teenage daughter, what I'll tell you is
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Forever 21 was That was going to
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go to zero anyways. Like, you need to be
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long. Brandy Melville,
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you need to be long. Oh god, what is
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this other one that's like the the
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clothes are so
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like yoga pants? Aloe,
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hold on.
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The kids wear a lot of those. They're
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into the athletic wear.
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What's the name of that clothing store,
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Vori? you know, where Sloan like always
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wants the, you know, the the skirts and
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stuff. Not Brandy Melville, but the
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other one.
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Oh. Um,
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uh,
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anyways, there's all these brands. Yeah.
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Forever 21 was not it.
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Yeah. What do you guys think? Should we
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do a should we buy out Hooters and put
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Sydney Sweeney as CEO? This could be a
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great brand extension. I don't know. The
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chicken wings are amazing.
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Saxs, any thoughts here on the creative
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destruction and what we're seeing?
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Obviously, it can't have to do with
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tariffs because they're only three
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months old and it seems largely the
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companies.
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Well, every company you've mentioned,
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every company you've mentioned is a
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retail business. They have physical
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locations that people have to go to do
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stuff or get stuff. And I think that
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this demand you had 2020 and me, you had
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Wag.
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You had a Yeah, but yeah, I think
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but I think the retail getting flushed
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out makes sense given the age of Amazon
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and Sheen and Target. Yeah. Well, the
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retail channel, like others, is highly
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levered because in order to have a
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retail store, you have to pay a monthly
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fee to the physical real estate owner.
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And so, it's unlike other businesses
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that are services or are more nimble and
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can relocate, you actually, it's the
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equivalent of having debt. When you sign
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a lease, you're stuck in a 10-year debt
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cycle. You have to pay every month a
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fixed amount of money and you can't get
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out of it. So, the retailers make a lot
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of sense. they were basically levered
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businesses in addition to all of the
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kind of macro trends of people not going
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to physical locations and co but I think
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Chimath has it right which is this is
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all kind of zer era you know indigestion
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that's being washed out and to the point
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like some percentage of overfunded
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negative unit economic type businesses
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are also getting cleaned up in the kind
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of call it tech space which involves
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typically a lot of companies that are
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not tech but math does tech
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so um That definitely makes sense to me.
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Saxs, any insights here?
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Well, just to pick up on this. So, you
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know, when you showed those charts on
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the bankruptcies, I didn't see a huge
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trend there. I mean, I can see that
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there's some pickup since the ZERP era,
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but it doesn't look like a huge trend to
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me. We just had a 3.3% GDP print for Q2.
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I think it
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that was restated, right? That's what
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happened today is they restated it.
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Well, no, there was an estimate.
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Remember the Atlanta Fed had this 3.3%
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estimate. Then they reduced it to 3.0,
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but now the actual number is in 3.3%.
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So the economy seems pretty hot and it's
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doing well. But I would say that there
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is some softness in the economy in those
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sectors that are exposed to high
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interest rates. And the best example of
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this is real estate. I remember on this
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program a year and a half ago, we talked
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about the wall of debt on commercial
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real estate that was coming due and had
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to be refinanced. And there's 2.2 two
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trillion of debt, CR debt that's
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maturing before 2028. And what we talked
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about back then was the banks don't
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really want to foreclose on these
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buildings because then it hits their
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balance sheet. So, everyone has a
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incentive to restructure this debt. And
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there were a lot of these blend and
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extend type deals where they would
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extend the debt and work out a a lower
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interest rate. Some people call these
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deals pretend and extend because you're
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pretending that the real estate sponsor
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still has equity in these buildings and
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they might have
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Have these started to come back?
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What I'm seeing is that some real estate
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developers are starting to lose
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buildings. Now, the reason for that is
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that the debt is coming to you and has
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to be refinanced. And there's two
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problems when you refinance. One is
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you're paying a higher interest rate. So
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now you take a building that was cash
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flowing and now at that higher interest
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rate, it might have negative cash flow.
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In other words, it it's basically
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bankrupt. So those buildings don't make
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sense anymore. And those are situations
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where you're going to lose the building
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to the bank. The other problem is when
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you refinance, you might not be able to
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get the loan to value that you had
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before because valuations have also come
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down because real estate valuations are
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inverse to interest rates, right? So in
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other words, if you know, let's say you
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had a building that was worth uh $100
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million before at zer era interest
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rates, you could borrow twothirds of
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that. So call it 66 million. Now, if the
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building's only worth, I don't know, $60
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million, then you can only borrow $40
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million. So, the amount of proceeds you
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can get when you refinance is much
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lower. And that gap has to be replaced
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with something. So, in that situation,
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the equity holders would have to come in
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and do an equity in refinancing where
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they've got to put up that gap. In the
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example I gave, that gap would be $26
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million. So, the equity holders have to
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come out of pocket, which is very
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difficult to do. and they might not want
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to do it and in that case you're also
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going to lose the building.
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Sax, I have a question. Nick, can you
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show up? Show this to Mitch. Sax, how
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does this trend build on top of that
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other trend which is on top of
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everything else now? It just seems like
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the real estate financing flows are
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moving far away from typical office
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construction towards data centers. So if
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you add that to the mix, then people
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seeking funding for traditional office
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are going to find or refinancing are
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going to find fewer lenders. Is that
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true or not true?
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Well, yeah. I think there has been a
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little bit of a credit crunch, but also
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there's no reason to really be building
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so much office space when there's so
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many buildings that are underwater or
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vacant.
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Yeah. Like a third of the real estate in
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San Francisco is basically vacant
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still.
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Still. So why would you build any more
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real estate? But what needs to happen is
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those buildings effectively need to go
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back to the bank and then they need to
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be auctioned off at some lower price so
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that new equity holders can come in and
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new capills can be formed and then you
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can get the money you need to do the
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tenant improvements the TI's so that you
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can get more tenants in there cuz right
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now one of the reasons why a lot of
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these buildings are empty is because the
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equity holders don't have an incentive
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to put in more money to do the TI's
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necessary to sign new tenants. So you
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got these zombie buildings that even if
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there was a tenant who wanted the space
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at some lower rent, the owners of the
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building have no incentive to do that
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because they can't put any money into
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the deal. So like we finally need a
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bunch of these buildings to go back to
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the bank or we need rates to come down
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so that you can do refinancings without
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them being these punitive refinancings.
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And I do think that there is a lot of
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risk in the economy in this sector
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because again of this wall of commercial
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real estate debt that's coming due. And
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I think this is the the problem. You got
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Pal sitting there. You got too late Pal
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sitting there in his ivory tower. He's
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willing to keep rates artificially low
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so he can get renominated and he can
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help Biden and Yellen. He's willing to
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cut rates to help Kamla. But as soon as
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Trump gets in there, he stops the rate
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cutting cycle even though inflation's
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down to 2.0%. So you got this too late
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pal and the rest of his Fed cronies. Jal
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wants to make it sound like they have
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some dissenting voice. It's nonsense. In
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any event, they're all collectively
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sitting there in their ivory tower,
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completely out of touch with what's
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happening in the economy, and they're
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being slow to cut rates. And I do think
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that at least sectors like real estate
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do need these cuts.
