Sarah Abrams

A host of economic factors — including most significantly the Fed’s interest rate increases (as part of The Fed’s overall money tightening policy sometimes referred to as Quantitative Tightening (QT)) – are putting pressure on companies, and the pressure is translating into increasing bankruptcy filings. In the following guest post, Sarah Abrams, Head of Professional Liability Claims at Bowhead Specialty, takes a look at these developments and considers the D&O insurance implications. I would like to thank Sarah for allowing me to publish her article as a guest post on my site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.


Director and Officer (D&O) liability policies are often implicated during corporate bankruptcies.  Allegations by company creditors of misrepresentations and securities violations are commonplace; often triggering insurer payment for defense costs and case settlement. With double the number of corporate bankruptcy filings year over year in 2023 and the highest number of filings since 2010 (especially Private Equity portfolio companies);[i] [ii]  will D&O insurance become an attractive source for increasingly scarce liquidity?

It first helps to understand recent market decisions that are causing the popularity of Chapter 11 bankruptcy filings; especially the impact of Quantitative Tightening (QT).  QT is a contractionary monetary policy that reduces the Federal Reserve (Fed) balance sheet.[iii]  Since mid-2022, the Fed has aggressively increased interest rates and signaled actions on U.S. treasuries that [iv]  would remove liquidity (easily converted assets), from financial markets.

The impact of the heightened interest rates shines the brightest on levered Private Equity (PE) portfolios.  In a lower interest rate environment, private equity sponsors tend to pour more capital into businesses that look like they could turn a corner and be able to meet delivery of loan terms.[v] Consumer discretionary companies, (i.e., retailers, restaurants) are more sensitive to challenging economic conditions and often have a balance sheet full of illiquid assets (i.e., employees, product inventory and commercial real estate).

One such story involves Instant Brands, Inc. which filed for Chapter 11 bankruptcy in mid-June. Instant Brands is majority owned by a New York-based PE firm that engineered the 2019 merger with World Kitchen, the Pyrex and CorningWare company, which Cornell initially purchased in 2017. The merger looked like genius a little over a year when the pandemic hit.[vi] 

While the media statement issued in connection with the Bankruptcy indicated that consumer taste shifts and rising costs due to inflation and supply-chain snarls were to blame, a bankruptcy attorney for Instant Brands indicated that the company was looking to restructure more than $500 million in debt on its balance sheet.[vii] Unfortunately, with QT removing liquidity from the market and interest rates providing a challenging lending environment, exiting Chapter 11 might be more challenging for Instant Brands and similarly situated PE debt laden portfolio companies.

Another high profile consumer discretionary brand to file for bankruptcy was Bed Bath & Beyond Inc. in April 2023. In its bankruptcy filing, Bed Bath & Beyond said it had $5.2 billion in debt.[viii]  Among many missteps, including an 8 year share repurchase program and keeping a nearly 800 “big box” store footprint, Bed Bath & Beyond was loaned $375 million by PE in 2022 despite having suffered steep losses, sales decline and pandemic related supply chain issues.[ix]  With the 2023 QT inflationary impact and lack of liquidity, Bed Bath & Beyond’s bankruptcy looks more like a Chapter 7 liquidation with submitting bids for inventory and intellectual property.[x]

Jenny Craig’s holding company, similar to Bed Bath & Beyond, went bankrupt in May 2023 with a hefty brick-and-mortar footprint and, as a result, remained loaded with $250 million in debt.[xi] Jenny Craig had been sold most recently in 2019 to PE and struggled to maintain enough cash in recent months as it stared down a first-lien term loan due in October 2024.[xii]  The Carlsbad, Calif.-based company recently launched a new line that delivers fresh meals to customers in a field crowded with Blue Apron, Fresh Direct, Balance MD, etc.[xiii]  Unsurprisingly, given the immediate impact of inflation on food, the fresh meal delivery service faltered and Jenny Craig didn’t even start with a Chapter 11 filing, it went straight for Chapter 7 liquidation with no buyer interested.[xiv]

Notably, PE firms are made up of sophisticated investment professionals that have historically increased the value of their portfolio investments.[xv] PE strategy has always included the aggressive use of debt, which provides financing and tax advantages; a determined focus on cash flow and margin improvement; and freedom from restrictive public company regulations.[xvi] The eye popping amount of debt sitting on company balance sheets is not necessarily new, nor is the prediction that 2023 will have the highest number of portfolio company bankruptcies since 2020 surprising.[xvii]  In fact, most PE firms have been reevaluating and pivoting on portfolio (PortCo) investment along with Fed monetary policies during and now after the pandemic.

However, unlike 2020, the Fed has found success in battling inflation with QT; keeping interest rates steady and even with a couple of .5% rate hikes through the end of the year.[xviii]  While it is often part of the PE portfolio life cycle to examine performance and whether a company can continue to operate, without access to cheaper money, the decision to file for bankruptcy, restructure or walk away becomes more appealing.  D&O underwriters see an increase risk of claims arise is in a market where the decision to file for bankruptcy or liquidate becomes the most palatable.  That is when trustees and creditors often start looking at the liability exposure of the portfolio leadership and to D&O company liability policies for payment.

D&O policies are underwritten to respond to a company’s failures and to protect leadership against allegations of malfeasance that might have led to bankruptcy. Bankruptcy exclusion endorsements are often insurance-market-conditioned options.  If such an exclusion is not available, what considerations will D&O underwriters make when underwriting portfolios during a QT market? Certainly examining the PortCo industry landscape and lingering effects of the pandemic, federal fund policies and nimbleness are just as important as looking at balance sheets with scrutiny.  Really the access to liquidity during QT is crucial, as well as the amount of involvement by a PE creditor in the portfolio prospective insured.  

PE firms have their own payment obligations to partners and with easier limited partner “divorces” the pressure to show a significant Return on Investment may create a conflict with portfolio company performance.  In a market where bankruptcies are increasing and credit remains expensive with higher interest rates, there may not be the access to capital for distributions to creditors that there once was.  As the above examples demonstrate, restructuring capital may not be an option, with Chapter 11 filings becoming Chapter 7 liquidations in order to shore up expected returns.  

Thus, D&O underwriters will also look at the PE portfolio diversity, recognizing that consumer discretionary companies will have a rough road ahead with QT remaining a mainstay. Board oversight considerations should be taken.  Depending on the makeup of the board (number of PE partners or investors with a board seat) the appetite for amount of debt levered on a portfolio may vary.  This could also create an avenue for additional insurance policy response from the PE firm liability carriers; creating both portfolio and PE D&O/E&O policies exposure.

PE firms know that their PortCos, need D&O cover to protect executive liability.  However, if D&O policies become a buoy for Fed monetary policy or a performance bond for PE, what is the incentive to continue to underwrite when QT policy is enforced?*

[i] There have been more than 230 corporate bankruptcy filings in the United States in 2023, according to the latest market intelligence data from S&P Global.[i] This is more than double the number of filings in the same period in 2022, and the highest number of filings since 2010.[i] Bankruptcy filings including all chapters totaled 38,669, a 23% increase from the May 2022 total of 31,330.[i] Chapter 11 filings increased 105% year over year.

[ii] Private equity portfolio companies in the US are on track in 2023 to see the highest annual number of bankruptcies since 2020 [78 anticipated].  Private equity portfolio companies on track for most bankruptcies since 2020 | S&P Global Market Intelligence (

[iii] Quantitative Tightening (QT) (

[iv] Id.

[v] Private equity portfolio companies on track for most bankruptcies since 2020 | S&P Global Market Intelligence (

[vi] Instant Pot, Pyrex maker lands in bankruptcy through debt, private equity maneuvers | Crain’s Chicago Business

[vii] Instant Pot, Pyrex maker says it will gauge sale offers in Chapter 11 | Crain’s Chicago Business

[viii] The $11.8 billion mistake that led to Bed Bath & Beyond’s demise | CNN Business

[ix] Id.

[x] A Critical Update On Bed Bath & Beyond Bankruptcy Process (OTCMKTS:BBBYQ) | Seeking Alpha

[xi] Here’s Why Jenny Craig Really Shut Down (

[xii] Weight-loss brand Jenny Craig files for bankruptcy, shuts down (

[xiii] Weight Loss Brand Jenny Craig Mulls Bankruptcy If Sale Fails – Bloomberg

[xiv] Id.

[xv] The Strategic Secret of Private Equity (

[xvi] Id.

[xvii] Private equity portfolio companies on track for most bankruptcies since 2020 | S&P Global Market Intelligence (

[xviii] Fed Officials Say Interest Rates May Need to Go Higher to Tame US Inflation – Bloomberg

* The views expressed in this writing are the author’s alone and do not necessarily represent the views of Bowhead Specialty Underwriters or any of its employees or affiliates.