Private Equity and Rising Churn: What Credit Needs To Know

Private equity (PE) has reshaped corporate America. Today that ownership model is driving unprecedented churn.

• In 2024, 110 PE and venture capital-backed bankruptcies were recorded, the highest ever.
• More than half of large corporate bankruptcies with liabilities over $500M involved PE-owned companies.
• 54 percent of bankruptcies above $1B also tied back to PE portfolios.
• Consumer discretionary and healthcare were the hardest hit, accounting for 22 of 52 PE-backed bankruptcies in early 2025.

The reasons are clear. Rising interest rates, aggressive leverage, and operational pressures have pushed already fragile balance sheets into default.

Key insight: Ownership matters. If you do not know who owns your customer, you do not really know your risk.

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Why the Surge in PE-Backed Bankruptcies?

Private equity-owned businesses are far more likely to collapse because of leverage. When a PE firm acquires a company, it often finances the deal with large amounts of debt. That debt is then placed on the portfolio company’s balance sheet, leaving the business highly exposed to changes in interest rates and market conditions.

In an era of higher borrowing costs, these debt-heavy companies face mounting interest expenses. If revenue growth slows or operating costs rise, cash flow is quickly consumed by debt service. The result is a rapid path toward financial distress and, in many cases, bankruptcy.

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The Impact of Private Equity on Trade Credit

PE ownership can change a company’s risk profile quickly.

• A family-owned distributor might be acquired, saddled with debt, and pushed to chase growth at any cost.
• Within months liquidity can disappear, suppliers are stretched, and trade creditors are left exposed.

Credit teams should treat ownership changes as critical signals, not as minor financial notes.

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Pros of Trade Credit for PE-Backed Companies

Trade credit can still be valuable.

1. Cash Flow Relief for Buyers. PE-backed companies often need liquidity for growth. Trade credit provides free financing.
2. Stronger Relationships. Extending credit builds trust and loyalty.
3. Early Payment Incentives. Discounts such as 2/10 Net 30 can improve margins.
4. Market Growth. Trade credit enables scaling for both buyers and suppliers.

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Risks of Trade Credit for PE-Backed Companies

Yet, the downside is significant.

1. High Bankruptcy Risk. PE-owned companies filed 16 percent of all U.S. bankruptcies in 2024.
2. Leverage and Volatility. Debt-heavy balance sheets create fragility. A small dip in cash flow can lead to missed payments.
3. Delayed or Missed Payments. Working capital pressures often mean suppliers are last in line.
4. Sector Risk. Retail and healthcare are especially vulnerable.
5. Lack of Transparency. Ownership changes may go unnoticed in traditional credit reports.

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What Industries Are Most at Risk?

The sectors most affected by PE-backed bankruptcies are consumer discretionary and healthcare.

• Consumer discretionary companies—retailers, restaurants, and lifestyle brands—often operate on thin margins. When loaded with debt, they lack the resilience to absorb downturns in spending.
• Healthcare has been a major focus of private equity rollups, but regulatory pressures, staffing shortages, and reimbursement challenges have created financial strain. PE-backed healthcare firms accounted for a large share of bankruptcies in both 2024 and 2025.

For suppliers, these industries require heightened vigilance and stricter credit controls.

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Is Trade Credit Safe for PE-Backed Companies?

Trade credit can be safe for PE-backed companies, but only if managed carefully. Suppliers that extend terms without understanding the ownership profile may face sudden defaults.

The key to safety is ownership visibility. If you know when a company has been acquired, recapitalized, or heavily leveraged, you can adjust credit terms proactively. Without that information, you are extending credit blindly. Safeguards such as shorter payment terms, trade credit insurance, and tighter monitoring are essential when dealing with PE-owned firms.

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What Should Credit Teams Do Differently for PE-Owned Firms?

Credit teams cannot afford a one-size-fits-all approach. When dealing with PE-owned companies, there are five essential practices:

1. Monitor Changes in Real Time. Treat ownership changes as a trigger for immediate credit review.
2. Tighten Payment Terms. Move away from long terms like Net 60 in high-risk accounts.
3. Use Trade Credit Insurance. Protect receivables from insolvency or late payments.
4. Diversify Exposure. Spread credit risk across sectors and avoid concentration with PE-owned firms.
5. Integrate Bankruptcy and Restructuring Alerts. Watch for distressed debt exchanges and recapitalizations that can weaken financial health before bankruptcy occurs.

By adopting these steps, suppliers can reduce exposure and make better-informed credit decisions when PE is involved.

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The Bottom Line: Visibility Is the Differentiator

Trade credit remains an essential tool for growth. For PE-backed companies it carries added risk. Ownership changes can mean the difference between safe credit and a sudden loss. Credit teams need real-time visibility into ownership, leverage, and financial health to make confident decisions.

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