Restructuring activity in private credit markets across the UK and Europe is poised to peak in the first half of 2026, driven by extended recovery timelines and private credit funds becoming increasingly selective about who they will lend to, making refinancing more difficult, according to a report by law firm Ropes & Gray.
“Drawing on market dialogues, our active mandates, and current trends, we expect a peak in restructuring activity in the
first half of 2026 as recoveries lengthen and lending, particularly from private credit, becomes more selective,” the report said.
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As a result, the firm warned that US-style liability management techniques are now embedded in European practice and are being deployed with increasing sophistication. These techniques include non-pro-rata exchanges, uptiering, and so-called double or triple-dip structures.
“Sponsors will continue to mine documentary flexibility and intercreditor gaps to preserve optionality, while lenders will continue to respond with tighter transfer provisions and bespoke blockers. The practical takeaway is unchanged: early, well-advised engagement on documentary permissions, consent thresholds and implementation pathways will be decisive.”
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The firm said that restructuring plan strategy will continue to evolve over 2026, as courts have also raised the bar on what they expect from restructuring plans. In the past, they may have approved them as long as they followed a standard approach, but now they require companies to provide evidence explaining the benefits of the way the plan is divided up.
“Courts are applying a rights-based “no worse off” test and expect meaningful, even-handed engagement with dissenters, supported by robust valuation evidence and, where relevant, market tested new money pricing,” the report said.
“We therefore expect to see restructuring plans operating as a disciplined backstop to liability management exercises—aligning execution speed with court-supervised certainty—while deal architecture adapts to anticipated appellate guidance on post-restructuring value allocation between senior and junior stakeholders.”
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Finally, the firm said that financing structures will continue to shape both risk and remedy.
“With the continued expansion of private credit in European distressed capital structures, expect to see faster, relationship-led, out-of-court fixes where time and consensus exist; but bespoke documents and larger clubs raise litigation risk and make rigorous downside planning essential.”
The report added that enforcement credibility remains a core lever. “English share-pledge enforcement routes (namely appropriation or receivership) emain well-trodden paths, and use of flexibility to pursue value preservation through equitisation of debt claims will continue to feature where equity is out of the money”.
