Europe’s restructuring market enters 2026 with a mix of confidence and caution, as practitioners across the continent expect more transactions, tougher negotiations and a judiciary that is now comfortable testing the limits of what’s “fair.”

The overall mood is pragmatic: deals will get done, but the work will be harder, according to Amanda Blackhall O’Sullivan, head of financial restructuring at Interpath in the UK.

“[This year] is shaping up to be a year of contentious but highly executable restructurings. Deals will get done, but they’ll require more preparation, more evidence, and more stakeholder management than in the last cycle. It feels like 2026 is the year of enforcement‑adjacent restructuring,” she said.

There is broad consensus among market participants polled by Debtwire that liability management exercises (LMEs) are here to stay in Europe.

Glen Cronin, who – alongside David Burlison – is co‑head of EMEA restructuring at Jefferies noted that “we’re at a point of inflexion in Europe on LMEs, something initially considered to be a distinctly US topic. They are increasingly gaining legitimacy, as part of the restructuring toolkit in Europe.”

He stressed that Europe will not mimic the more aggressive American playbook. “The late start in Europe on this topic means it won’t be a cookie cutter replica of US deals. Market participants are carefully studying what has – and hasn’t – worked in the US, and are structuring transactions to mitigate litigation risk and ensure outcomes provide a bridge and not a pier for companies’ capital structures.”

On cooperation agreements, he argued that the ongoing controversy (Optimum Communications – formerly Altice USA – is currently suing co-op creditors alleging cartel behaviour) has not derailed their usefulness.

“They will continue without skipping a beat, they remain an effective tool,” even if pushback about value transfer, two‑tier creditor outcomes and the impact on secondary market liquidity is now part of the conversation, according to Cronin.

A busy year as underperformance forces financial reckoning

The consensus is that restructuring activity will accelerate in the first half of the year, continuing the late‑2025 pickup. Persistent cost pressure is a common driver – energy and labour remain expensive, tariffs are sticky even when reduced, and rates are still high relative to the debt structures set during the last cycle.

“If you unpick the drivers for underperformance, the top line is that the market demand is soft. Across many sectors there is a lack of business investment and/or consumer confidence, which is to be expected given 2025 was a turbulent year with market volatility, geopolitical instability, supply and demand shocks from tariffs, and concerns stemming from the UK budget,” according to David Morris, head of the UK restructuring at FTI Consulting. “Inflation is still driving up costs and the recovery everyone hoped for in 2025 didn’t materialise, so we are now seeing real signs of stagflation,” he said.

These factors are compounding to put financial pressure on issuers, especially those that raised funds in the easy-money pre-rate hiking environment.

“There are also the looming maturities, especially from the 2018 to 2021 LBO vintages. What is interesting is many maintenance covenants are still not triggering an event because of the flexibility in terms of adjustments and adjusted EBITDA. However, EBITDA is not the same as cash and ultimately, it will be a lack of liquidity that forces action,” said Morris.

This dynamic sits atop a delicate macro environment, according to Duncan Turner, senior managing director also at FTI Consulting.

“The biggest thing that could change activity in 2026 is inflation staying higher for longer or even picking up again. If services inflation remains stubbornly high, or if [US President Donald] Trump’s attempts to reshape the Fed pushes bond yields up, it will be harder for companies to refinance their debt. In the UK, gilt yields are vulnerable to any bad news on government borrowing because the country’s fiscal position is still fragile,” he said.

Others are in agreement.

“What have previously been seen to be temporary pressures, appear now to be settling and becoming structural shifts,” noted Chris Hogg, managing director in Alvarez & Marsal’s financial restructuring team. “Where businesses have been able to cut costs and pull short-term liquidity levers, we are beginning to see businesses now have to completely overhaul and transform from a structural, operational and financial perspective.”

The AI investment boom poses another risk, added FTI’s Turner.

“No one can predict when investors’ current frenzy to invest subsides, but the rush to build debt-funded data centres feels like the next big infrastructure bubble, and the fallout could leave lenders nursing significant losses. There’s also a lot of leverage in the system, which means any broader sell-off could be amplified and leave some funds struggling to repay their debts.”

On the continent at least, management teams are recognising and addressing many of the challenges at play, according to Dr Franz Bernhard Herding, co-head of German restructuring at A&O Shearman.

“The German economy is undergoing a transformation process and has to face increased energy prices, increased competition and declining demand from key markets globally. However, facing these multiple challenges, a new mindset is developing among decision‑makers, and companies are working on their strategy, cost structure and investments to adapt to the changing world. In addition, there is a growing recognition that Europe and the deepening of the European single market must be the answer to many of these challenges,” he said.

Sectors: chemicals, autos, fibre/digital infrastructure and renewables top the watchlist

Market participants were also broadly in agreement regarding the sectors in which the pressure will manifest as financial distress – with chemicals emerging front and centre. Turner noted that Europe’s chemicals industry remains under “huge pressure due to weak demand, high energy costs and cheap imports”.

Mathias Eisen, partner at Milbank’s financial restructuring team in Germany, expects the burden to fall on cyclical, capital‑intensive sectors – industrials, automotive suppliers, chemicals, real estate and parts of consumer/retail – with transition‑heavy business models also at risk. This list echoes those of others polled.

The automotive supply chain, particularly in Germany, must navigate the cost and complexity of the EV transition while contending with global competition, according to Daniel Judenhahn, managing director and head of restructuring for the DACH region at Lazard. He pointed to “increasing leverage, weak demand visibility, and continued margin pressure from the EV transition and intensifying global competition”.

In digital infrastructure, the altnet story is a major theme in the UK and Germany, with G.Network having recently filed for administration in the UK after being taken over by a distressed debt fund.

“The fibre and altnet sectors […] have been under significant pressure and that is not going to change any time soon,” said Chris Bennett, senior managing director at FTI Consulting. “Altnets will need to consolidate to generate scale and drive-up unit economic returns. So far, most of this activity has been at the smaller, unlevered end of the market and on a paper equity basis. Consolidation won’t be a silver bullet, as it increases operational complexity. It will take time, capital investment and management stewardship to bring sizeable altnet networks and balance sheets together,” added Bennett.

Judenhahn agreed regarding the altnet sector and added that energy infrastructure was another area of concern.

“A bifurcation is emerging across energy sources – such as onshore wind, solar, and BESS [Battery Energy Storage Systems] – as each exhibits different investor attractiveness driven by divergent subsidy regimes, capex requirements, supply‑chain pressures, and cash flow visibility; while capex intensity and rising financing costs are putting pressure on business models/cash flows in the broader digital infrastructure space.”

More broadly, in Germany, work‑out teams are busy and attention is having to be rationed, according to Dr Herding.

“We will see more and also a few major restructurings that include the capital structure of the companies, less A&Es, less optimistic hockey stick planning. There are suitable concepts for these cases and the StaRUG can show what it can do, but new money for growth and investments will be crucial. However, restructuring departments in banks are already sufficiently busy and are faced with the decision of which client (can) be served, when and to what extent. If possible, customers therefore remain in normal support for the time being and are ‘coached’. Smaller restructuring cases have to compete for attention. Certain banks are already considering selling individual commitments; portfolio sales cannot be ruled out,” he noted.

France looks busy as well, driven by sponsor‑backed LBOs with US‑style creditor dynamics. “We are already seeing a wave of high‑profile restructuring cases in France […] This has accelerated the use of LME techniques in the French market,” says Karim Helal, managing director at Interpath in France.

He expected the political backdrop and fiscal deficit to weigh on consumers through 2026. Meanwhile, the Netherlands continues to attract groups able to use WHOA in combination with UK tools, especially where COMI or debt location offers optionality, and where parallel processes can hedge recognition risk.

In‑court processes: post‑Petrofac pragmatism in UK, growing confidence on the continent

Despite the UK Court of Appeal’s landmark judgment regarding Petrofac’s Restructuring Plan [RP] giving practitioners pause for thought, the UK remains the gravitational centre for debt documentation, and RPs will continue to have a place in the toolkit, agreed the market participants polled by Debtwire. However, several participants pointed to a resurgence in Schemes of Arrangement as uncertainty lingers.

Blackhall O’Sullivan described Petrofac as a “course‑correction,” not a death knell for RPs, emphasising that plans will succeed when built on clean value allocation, credible comparator evidence, and balanced new‑money economics.

Bevis Metcalfe, co‑chair of the Financial Restructuring Group and partner at Cadwalader, Wickersham & Taft agreed. “The UK isn’t going to stop being an attractive destination for forum‑shopping any time soon. But it is also true that Petrofac left some unanswered questions for practitioners and investors.”

He anticipated that appellate courts will continue clarifying where the “fairness” line is drawn, but “in the interim, we expect companies to proceed carefully (sensible) and engage fulsomely with their creditors (also sensible) to identify issues early and work to bridge consensual solutions before resorting to cross-class cram-down”.

The RP remains a powerful mechanism, but market behaviour reflects judicial signals, and Jefferies’ Cronin noted that RPs in 2026 “will need to be carefully navigated” in light of cases like Petrofac and Waldorf, another RP which failed to secure sanction from the High Court following the Petrofac decision.

This is prompting some dealmakers to revisit pre‑packs or to adopt a more front‑footed approach to continental processes that had previously been overshadowed by the UK’s well‑worn path, according to Cronin.

Meanwhile, Simon Edel, financial restructuring partner at EY Parthenon, said “we expect to see a continuation of Restructuring Plans in the retail sector, following the run of Superdry, Poundland and River Island, addressing both capital structure and operational lease issues,” however, their cost and complexity may push many to distressed disposals, insolvency, LMEs or wholly consensual solutions.

“[An RP] shouldn’t be a one‑stop shop. It should be a tool that you use in the right circumstances where you can justify its use to the court and creditors,” said Edel, but at the same time, insolvency processes are regaining ground as an implementation route, not merely a last resort.

Pre‑packaged administrations and share‑pledge enforcements can deliver clean ownership changes and operational resets – especially in single‑lender private credit structures where cross‑class cramdown is less of a pressing requirement. “In many cases, it may be more effective to enforce a share pledge to take control, rather than pursuing a more complex court‑led solution,” added Edel.

Across Europe, StaRUG in Germany and WHOA in the Netherlands are maturing rapidly. Eisen underscores a key distinction in Germany – equity cram‑down is available – and points out that recent English appellate decisions have caused uncertainty over UK RPs and a preliminary ruling of the Frankfurt district court has resulted in uncertainty over UK RPs recognition in Germany.

Since English‑law governed debt contends with the Rule in Gibbs, which requires an English judgment to be compromised, parallel proceedings may become more relevant, in addition to the compromise of debt, a cram-down of the equity is required, dual track approaches should be pursued for example StaRUG plus Scheme of Arrangement, to maximise transaction certainty, added Eisen.

LMEs: here to stay, but moving to a more litigated model

If 2024–25 was the period when LMEs crossed the Atlantic in earnest, 2026 looks like the year they become European in style, with those polled largely agreeing that this restructuring technology is going to remain a significant part of the market going forward.

Blackhall O’Sullivan said that “aggressive LMEs aren’t going away, but they’re no longer free shots. In the UK and Europe, we expect they will evolve away from ‘copy‑paste-US’ into a more European, litigation‑aware version. The incentives for them to stay are structural. Sponsors and new money providers still have every incentive to use majority/minority dynamics, covenant flexibility, and structural features to capture value. That doesn’t change – and in fact, is something we have been doing in UK restructurings all along. However, the ‘anything goes’ phase is over. After a run of controversial deals, lenders are drafting tighter docs, litigating more, and coordinating faster. That doesn’t stop LMEs; it just makes them more negotiated and perhaps more carefully papered and considered.”

Cadwalader’s Metcalfe was categorical. “They are 100% here to stay as long as the conditions for them persist,” while acknowledging pending disputes – Hunkemöller, Selecta, and antitrust issues around co‑op agreements – will shape the boundaries.

He added that the “zeitgeist is transact now and worry about the litigation later,” and that the real test will come if LME candidates file for insolvency and prior transactions are scrutinised as antecedent acts.

Another theme that united market participants was the bigger role of private credit.

“We are expecting 2026 to be a year in which private credit starts to play a more significant role in restructurings driven by the need to address underlying over‑leverage in Covid‑era buy‑outs,” said Metcalfe. Lenders have been generous with runway, but when turnarounds stall, a capital structure overhaul becomes unavoidable, often most efficiently consensual, he continued.

The restructuring toolkit has never been broader. Alex Kay, partner in the Restructuring & Special Situations team at Hogan Lovells, stressed the practical advantage of having multiple credible routes to execution.

“Not only does LME technology and documentary flexibility provide out‑of‑court implementation routes, but as European in‑court processes become more tested they will provide an alternative to an English scheme or restructuring plan for the right situation,” he said.

CDS: at a credibility crossroads as restructuring tactics evolve

The credit default swap market sits uncomfortably at the junction of legal form and economic substance. “[Last year] was one of the most challenging years for the CDS market […] the ‘creditor violence’ finally reached CDS,” says Carlos Pardo, an independent expert in the CDS market.

He pointed to the Intrum AB auction and Ardagh credit event as illustrations of how auction timing, deliverables and lock‑up/co‑op mechanics can yield outcomes that feel unmoored from underlying credit risk. For him, 2026 “will be a ‘make it or break it’ year with ISDA and the Determinations Committee having to make significant changes […] or else face a showdown with regulators and perhaps litigation.”

Sergio Grasso, general manager and senior investment advisor at iason, said the problem runs deeper than settlement mechanics. “CDS spreads […] no longer provide a reliable signal of underlying credit fundamentals […] When CDS instruments fail to reflect actual credit risk or deliver predictable outcomes, their role […] is undermined – potentially contributing to mispricing of risk, inefficient capital allocation, and increased systemic fragility.”

The market’s growing unease is shaping how advisors structure transactions that may, or may not, trigger credit events, and how they plan for the ramifications if auctions are delayed or deliverables contested, he added.

Notably, the CDS Determinations Committee’s (DC) recent decision to allow Ardagh Group’s equitised SUNs to be delivered into a CDS auction – despite a challenge from hedge fund Arini – is a signal that the DC is keen to address the perceived dislocation of CDS outcomes versus their intended purpose to insure against credit losses.