FTI’s Eisenband, DLA Piper’s Albanese Weigh in on ‘Vibecession,’ Q3’25 Earnings Season; Expect ‘Robust’ Restructuring Activity in 2026

Introducing the Special Sits and Distressed Weekly, a merger between Octus’ Americas Weekly and Cleansing Materials. The Special Sits and Distressed Weekly dives into recent trends in the world of chapter 11 and prebankruptcy and highlights the most topical work from Octus’ editorial teams on stressed and distressed topics.
 

By Patrick Fitzgerald

With the third-quarter 2025 earnings season past its midpoint, Michael Eisenband, global leader of the corporate finance and restructuring segment at FTI Consulting, and Rachel Ehrlich Albanese, co-chair of the U.S. restructuring practice at DLA Piper, offered their appraisal of the ongoing macro disconnect between the “vibecession” and the continuing strong performance of the S&P 500.

“Large corporate earnings mostly met or beat expectations in the third quarter of 2025, but a notable takeaway was the prevalence of layoff announcements that accompanied [quarterly] results,” Eisenband said. “Whether that reflects slowing business prospects ahead, elimination of corporate bloat, or the start of the AI onslaught remains to be seen – but it has gotten everyone’s attention.”

“As a former student of linguistics, I love the term ‘vibecession’ – it is a great way of explaining the otherwise inexplicable discrepancy between the strong U.S. macroeconomic data and the depressed sentiment of many consumers about the condition of the U.S. economy and their own personal finances,” Albanese said. “As Michael Eisenband recently wrote, ‘for many Americans, it may not be a recession we are experiencing, but it has the vibes of one to them every time they go grocery shopping for the family or struggle to make the monthly car payment’ – I think third-quarter earnings reports reflect that.”

Eisenband explained that there’s a strong argument to be made that lower- to middle-income Americans are already experiencing recession-like conditions, as earnings from companies with heavy exposure to lower- and middle-income consumers – including theme parks, casual dining restaurants, retailers and used cars – were not encouraging, with indications that these consumers will continue to struggle in the months ahead.

Consumer sentiment among the lowest one-third of households by income is lower than at any point during the global financial crisis, or GFC, of 2008-2010, Eisenband added, while sentiment of the next one-third of households by income is at comparable levels to the GFC. In addition, overall consumer sentiment is way down from pre-pandemic levels of 2018-2019, even as the economy has recovered sharply from the pandemic period.

“This bifurcated consumer economy doesn’t get enough attention because aggregate spending is holding up well enough thanks to spending by the top 20% to 25% of households,” Eisenband said. “Can that continue indefinitely? It’s doubtful, but we’ll see in 2026, when there will be little reprieve for financially challenged households.”

As for 2026, Eisenband expects restructuring activity to remain robust – comparable to 2025 or higher explaining that companies that restructured in recent years have tended to go for the quick fix via a deleveraging transaction but did not sufficiently address operating deficiencies and inefficiencies.

“As long as that dynamic prevails, many ‘right-sized’ companies eventually will be back in play again for restructuring advisors,” Eisenband said. “The cumulative total of companies that have done distressed debt exchanges or liability management exercises since 2020 is now very sizable, and we think it’s reasonable to expect that approximately 40% of them eventually will need to restructure. We’re playing the long game here.”

“We have been steadily busy in 2025, and I don’t see that tapering off any time soon,” Albanese added. “We’re expecting to see even more restructuring activity in 2026. The ‘vibecession’ realistically could turn into a recession, given recent trends. Persistent inflation, high interest rates, declining jobs and geopolitical uncertainty are all potential contributing factors.”

Sector-wise, the restructuring professionals noted ongoing pressures felt by renewable energy companies given the dramatic shift in U.S. energy policy, real estate and consumer-facing businesses.

“Tariff impacts have yet to be fully felt, and any assertion that consumers or the domestic economy have handled tariffs well is premature,” Eisenband said. “That’s really a 2026 story.”
 

Court Opinion Review

In the latest installment of the Court Opinion Review, our colleague Kevin Eckhardt highlights “Fossil apparently manufacturing venue in England, the path ahead in First Brands, an interesting decision on contract assignment in Village Roadshow and the end of chapter 11 for Dr. Phil’s Merit Street Media.” Read the Court Opinion Review HERE.
 

Vibrantz Technologies

Privately held Vibrantz Technologies disclosed third-quarter 2025 earnings to creditors, reporting that adjusted EBITDA dropped 23% on a year-over-year basis to $89.6 million. Revenue for the American Securities-backed manufacturer of specialty additives declined 8% to $421 million in the same comparison. Liquidity and net leverage stood at $168 million and 8.2x as of quarter-end. Moody’s Ratings downgraded the company in late September, stating that the move “reflects the company’s weak credit metrics and eroding demand in its key end markets such as electronics, batteries, coatings and plastics.” Octus’ Vibrantz Technologies coverage is HERE.

J.C. Penney

J.C. Penney cash flow is under pressure as net sales have declined by an average of 7% annually from fiscal 2021 through fiscal 2024 ended Feb. 1, 2025, while its SG&A expenses remained roughly flat over that period. Since the company benefited from an inventory-driven working capital inflow in fiscal 2023, largely a reversal from its fiscal 2022 outflow, we calculate that the company has burned about $150 million of free cash flow over the last 18 months. Octus’ J.C. Penney coverage is HERE.

Dye & Durham

An ad hoc group of majority term lenders to Dye & Durham have organized with a legal advisor in relation to the legal tech provider’s request to waive a default arising from failing to file financials for fiscal 2025 and first quarter of 2026 on time. The company said in September that it had obtained a waiver under the credit facility to gain more time, until Dec. 1, to file its audited report for fiscal 2025 ended June 30. Dye & Durham said earlier this week that it needs an additional waiver in relation to its first-quarter 2026 financials as well as the annual report. It said the credit agreement has a 30-day cure period for a default of this nature. The Ontario Securities Commission also issued a temporary and voluntary management cease-trade order against the company in connection with its delayed filing of its annual financial statements. Dye & Durham has experienced turmoil this year due to alleged default, shareholder activism and frequent leadership changes. Further coverage of Dye & Durham can be found HERE.
 

First Brands Group LLC

At a bench ruling on Nov. 12, Judge Christopher Lopez denied the First Brands Group debtors’ motion for a preliminary injunction in their adversary proceeding against the company’s founder and former CEO, Patrick James. First Brands alleges James misappropriated hundreds if not billions from the debtors and sought to freeze his and his affiliates’ funds. However, the judge said a broad asset freeze is unjustified at this time, saying it is “speculative and not imminent” that James would continue transferring estate assets.

On Nov. 10, the debtors, the official committee of unsecured creditors and the ad hoc group of first lien cross-holders told the court that they agree to the appointment of a chapter 11 examiner, as requested by the U.S. Trustee and creditor Raistone. They ask the court to hold a hearing in December on the examiner’s duties and scope of investigation. Octus’ First Brands Group coverage is HERE.

Pine Gate Renewables

At a first day hearing on Nov. 10 for renewable energy project developer Pine Gate, Judge Christopher Lopez approved the debtors’ DIP financing on an interim basis, unlocking $55.4 million of new money. However, the judge deemed the proposed rollup of prepetition debt “too rich,” only approving it after the DIP lenders reduced it from $1.4 billion to about $525 million, or a 1.25:1 ratio, according to the debtors. Judge Lopez also approved the debtors’ bid procedures for the sale of their assets, setting a Monday, Nov. 17, deadline for indications of interest. Octus’ Pine Gate coverage is HERE.

Anthology

Judge Alfredo R. Perez entered bidding procedures and final DIP orders in the bankruptcy of education technology company Anthology on Nov. 12. The second day hearing was canceled after the debtors told the court they resolved informal comments from first-out RCF lender Vector and the official committee of unsecured creditors. The sale hearing is scheduled for Nov. 21 at 11 a.m. ET. Octus’ Anthology coverage is HERE.

Serta Simmons Bedding

On Nov. 10, the U.S Supreme Court issued an order denying a petition to review the U.S. Court of Appeals for the Fifth Circuit’s 2024 decision excising the indemnification of lenders who participated in the bedding company’s 2020 uptier exchange from Serta’s confirmed plan. The participating lenders had urged the high court to take the case, arguing that the Fifth Circuit was wrong to “excise a material provision from a confirmed and consummated bankruptcy plan without sending it back for a revote.” Octus’ Serta Simmons Bedding coverage is HERE.

Yellow Corp.

On Nov. 12, Judge Craig T. Goldblatt took confirmation of the Yellow Corp. debtors’ fourth amended liquidating plan under advisement after hearing testimony on the debtors’ liquidation analysis and brief arguments from counsel. Judge Goldblatt said he will issue an oral confirmation ruling on Monday, Nov. 17, at 10 a.m. ET.

The hearing focused on shareholder/creditor MFN’s argument that the plan does not satisfy the “best interests” test in section 1129(a)(7) of the Bankruptcy Code because creditors of at least one debtor would receive more in a chapter 7 liquidation than under the plan. MFN points out that the plan provides for full payment of $44 million to $60 million in unsecured convenience and employee claims that would not be paid in full in a chapter 7 liquidation – meaning those funds would be distributed to other creditors, boosting their recoveries beyond what they would get under the plan. Octus’ Yellow Corp. coverage is HERE.

Purdue

Judge Sean Lane announced today that he will confirm Purdue Pharma’s revised chapter 11 plan, six years after the opioid maker entered chapter 11. The plan reflects a $7.4 billion settlement negotiated with Purdue’s owners, the Sackler family, after the U.S. Supreme Court struck down the debtors’ previously confirmed plan over nonconsensual nondebtor releases. The court held a three-day confirmation hearing. Octus’ Purdue coverage is HERE.

Fed Report Calls First Brands, Tricolor Bankruptcies ‘Isolated Events’

The Federal Reserve Board’s semiannual report on financial stability observed that the recent bankruptcies of First Brands and Tricolor appear to be “isolated events” but demonstrate the risks of “opaque off-balance-sheet funding arrangements” at some privately held firms. More broadly, the report observed that there has been an increase in bank lending to special purpose entities, CLOs and asset-backed securities. The Fed also reiterated its prior observation that there are notable vulnerabilities from the growth in leverage in nonbank sectors but that the banking sector remains sound and resilient. Octus’ coverage of Regulatory Policy & Litigation is available HERE.