Fitch Ratings reports that a wave of recent bankruptcies across the U.S. gaming, leisure, lodging, and restaurant sector is being driven by elevated leverage, higher borrowing costs, persistent cost inflation, and softer discretionary consumer spending. According to the rating agency, pressures are most intense for highly leveraged companies, particularly those catering to consumers with tighter budgets.
After a long period of relatively benign credit performance, leveraged loan default activity in the gaming, leisure, lodging, and restaurant (GLLR) universe increased between 2022 and 2024. This contrasts with the stretch from 2015, when default rates in the sector consistently remained below 0.5%. The shift underscores how quickly capital structures that were sustainable in a low-rate environment have come under strain as financing costs and operating expenses moved higher.
Fitch estimates that GLLR issuers now represent 6.8% of its U.S. High Yield Default Universe, indicating that the sector is a meaningful contributor to speculative-grade defaults. The group also accounts for 6.0% of the agency’s U.S. Institutional Leveraged Loan Default Universe, highlighting the sector’s exposure to institutional loan markets and its role in broader credit performance statistics.
Despite the uptick in bankruptcies, outcomes for senior secured lenders have generally been favorable. In a review of 84 GLLR issuers that went through bankruptcy, Fitch found that first-lien lenders achieved median recovery rates of 88% and average recoveries of 71%. These figures suggest that, even in stressed scenarios, collateral packages and capital structures have provided a substantial degree of downside protection to top-of-the-stack creditors.
Recovery outcomes for second-lien and unsecured creditors were more variable, reflecting their subordinate position in the capital stack and the degree of value erosion under distress. Nonetheless, the sector’s bankruptcy cases generated exit valuation multiples that were above the cross-sector median in Fitch’s U.S. corporate bankruptcy database, signaling that reorganized GLLR companies have generally been able to support relatively stronger post-emergence valuations than many peers in other industries.
Fitch’s analysis of 59 detailed GLLR case studies further indicates that most businesses have remained viable following restructuring. Of these cases, 56 continue as going concerns and have avoided liquidation, demonstrating that, while leverage and operating pressures have been significant, underlying assets and business models in the sector often retain sufficient value to be reorganized rather than wound down.
For stakeholders in the GLLR space, the data points to a cycle characterized by higher default and restructuring activity but also by generally constructive recoveries for senior creditors and a high rate of business continuation. Elevated leverage and cost pressures remain key vulnerabilities, particularly for operators serving more budget-conscious customers, while restructuring outcomes highlight both the resilience and the risk differentiation embedded in the sector’s capital structures.
