Creditors negotiating restructuring deals are taking a firmer line with companies on due diligence and documentation, aiming to protect their positions if borrowers slide back into distress.

Advisors say the tougher stance follows a cycle of contentious liability management exercises and bankruptcies in 2025 that exposed weak points in issuer disclosure practices and creditor protections.

Borrowers, however, still have leverage thanks to an active market for deal-away transactions and a wide-open primary market that gives issuers options to bolster liquidity without the help of existing creditors.

The shifting dynamics come as companies across multiple industries face sustained pressure from shifting demand, rising expenses and AI-driven disruption, setting the stage for renewed stress in 2026.

Chemical burns

While advisors caution against over‑indexing restructuring risk to any single industry, many are focusing on opportunities among struggling chemical groups.

“Chemicals, chemicals, and chemicals,” said Scott Greenberg, global chair of restructuring at Gibson Dunn, pointing to global oversupply of some products — particularly from China — tariff exposure and persistent pricing pressure as key headwinds.

Engineered plastics producer Trinseo, specialty chemicals firm Vibrantz Technologies, and titanium dioxide producer Tronox are among the chemical names Debtwire is actively tracking as restructuring candidates.

Gibson Dunn is representing creditors in all three names, Debtwire has reported. Paul Hastings is advising lenders who led a drop-down deal at Trinseo in 2023 that put them in a better position than existing lenders.

Beyond chemicals, Greenberg noted that the education and learning‑services space is emerging as an area to watch, driven by uneven enrollment trends and high-cost capital structures.

Advisors are increasingly focused on divergence within technology and software, particularly as AI reshapes how companies operate and investors’ expectations.

“We’ve seen clear beneficiaries of AI this year, particularly in the digital infrastructure space,” said Alex Raskin, a managing director at Houlihan Lokey. “Some legacy software companies have been under a lot of pressure due to uncertainty around AI.”

Raskin said that while many legacy names continue to post relatively stable operating results, scrutiny has intensified around returns and key performance indicators tied to AI investment.

“There’s been much more focus on whether the returns justify the spending,” he said. “It will be interesting to see whether AI tailwinds turn into headwinds for some companies next year — and vice versa.”

More recently, short sellers have been targeting software companies that may face challenges staying relevant with the widespread adoption of AI technology. SonicWall, Internet Brands, Consilio and Epiq are among the companies with leverage loans that market participants suspect short sellers have bet against.

Technology and software are likely to be busy sectors over the next few years as many companies in the sector took on significant levels of floating rate debt in a lower rate environment and focused capital deployment on funding growth over profitability, according to Zul Jamal, co-head of restructuring at Moelis.

“We are now seeing liquidity dry up as companies must fund operating cash burn coupled with significantly higher debt servicing in the current environment. This trend will likely continue and will force sponsor-backed companies to re-evaluate their investment thesis given high leverage levels, elevated interest expense and limited exit opportunities,” Jamal said.

Healthcare, discretionary retail, commercial real estate, building products and select industrial subsectors also remain under close watch as higher financing costs collide with legacy leverage and uneven customer demand trends.

“Retail has the perpetual risk of restructuring due to changing consumer demands, behavior and some challenges due to evolving fashion trends,” said David Orlofsky, managing director at AlixPartners. He highlighted the “Amazon effect” which can impact a wide span of businesses.

Across industries, advisors said they expect the looming 2028 maturity wall will produce a slow-moving restructuring cycle as companies look to address the last remaining bonds and loans issued in 2020 and 2021 at ultra-low rates. Companies that executed LMEs in 2023 and 2024 will face a new round of maturities in the coming years.

Private credit borrowers are not immune to the maturity wall, said Jochen Schmitz, managing director in capital advisory and restructuring at Lincoln International. He predicts a notable increase in restructuring activity in the space this year due to a combination of aging pandemic-era capital structures and borrowers electing to PIK interest payments.

By Lincoln’s estimates, a sizable share of private credit debt maturing this year and next has already been amended and extended with a significant portion involving companies relying on PIK, a signal of potential distress.

On the BSL side of the market, several issuers are starting the year facing misaligned capital structures with unsecured notes maturing in 2027 ahead of 2028 secured bonds and loans. Notable examples include label maker Multi-Color Corp and theme park operator Merlin Entertainment.

Multi-Color’s capital structure sparked one of the first creditor fights of 2026 when unsecured bondholders pushed the company to take an uptier deal over a comprehensive in-court restructuring favored by secured creditors, as reported. CD&R-backed Multi-Color chose bankruptcy over an LME, sending the unsecured bonds plunging over 40 points on the news.

Post‑LME protections tighten

In the wake of the last fall’s rapid collapse of First Brands Group amid allegations of fraud, creditors are placing increased emphasis on due diligence, particularly around off‑balance‑sheet liabilities and affiliate structures. That scrutiny, however, remains uneven in the primary market due to competition between creditors to fund deals.

“When a good deal hits the market, it’s often a fly‑by,” said Matthew Roose partner at Ropes & Gray. He added that there isn’t much opportunity to negotiate documents or do additional diligence, especially when there’s demand.

That changes once companies enter stress. During LMEs and deal‑away transactions, creditors gain leverage to demand disclosure and materially more restrictive credit terms following a transaction.

Advisors say that in negotiations, lenders are increasingly attentive to affiliate structures, asset transfers and information rights and to ensuring that post‑LME protections hold up in subsequent transactions.

Market participants say lenders are pushing to extend LME blockers beyond out‑of‑court transactions and into bankruptcy, including restrictions governing DIP facilities, roll‑ups and rights offerings.

“What we’re seeing is a sustained effort by lenders to harden documents against repeat liability management,” said Adam Shpeen, partner at Davis Polk. “That includes protections designed to limit not just future LMEs, but also how transactions play out in a potential bankruptcy, including around DIP financing and priority‑shifting constructs.”

Deal‑aways in play

At the same time, deal-away financings, where issuers raise funds from new lenders at the expense of existing creditors gained momentum in 2025 and are expected to feature prominent in 2026 restructuring talks.

Market participants say these transactions are a viable option, particularly when borrowers need fast liquidity, but they rarely are a complete substitute to a comprehensive restructuring.

In one high-profile case last summer, Altice USA secured a USD 1bn asset backed loan facility through an unrestricted subsidiary from new lenders Goldman Sachs and TPG Angelo Gordon. JPMorgan Chase later stepped to refinance a key term loan that had been protecting creditors across the telecom company’s capital structure.

Later in the year, fellow telecom group Liberty Puerto Rico reached a deal-away with Diameter Capital Partners to bolster liquidity. Cleaning products maker KIK Custom Products also inked USD 150m in rescue financing from Oaktree Capital Management and other lenders.

Embattled luxury retailer Saks Global initially raised a USD 350m FILO facility from SLR Credit Solutions in May 2025 before going back to the negotiating table with a group of bondholders to reach a deal for new money.  Even with the liquidity boost, Saks was forced to file for bankruptcy in January with the new money bonds trading in the single digits.

“In all of these deal‑aways, it’s about creditor versus borrower leverage,” said Ropes & Gray’s Roose. “Borrowers want to show the capability or actionability of a deal‑away, and creditors are assessing how likely the borrower is to actually execute.”

Roose noted that while deal‑aways can ease near‑term liquidity constraints, they leave key structural issues unresolved.

“The deal‑away only addresses one aspect of the capital structure, and that’s liquidity,” he said. “You can’t capture discount, you can’t extend maturities, and you’ve set up a negotiating dynamic where creditors are unhappy.”

Borrowers, however, continue to test the boundaries of credit documents. “Creative lawyers and bankers will always find holes, whether that’s using non‑subsidiaries, non‑guarantor restricted subs or IP,” Roose added.

In some recent cases, borrowers have shifted collateral first and then approached existing lenders, giving creditors a limited time to respond with their own offer. Still, advisors emphasize that incumbent lenders retain structural advantages.

Gibson Dunn’s Greenberg said that he has seen a small rise in deal‑away transactions, but he argued the uptick is not yet significant. “There’s been a slight uptick—but not enough to really move the needle.”

He warned, however, that the unintended consequence could be more creditor co‑ops, where lenders organize to push back against aggressive sponsor behavior. “It may just lead to more coops, ironically, the unintended consequence of sponsor/borrower counsel behavior.”

In the case of Altice USA, the company launched potentially precedent-setting litigation challenging creditors’ cooperation agreement on antitrust grounds. Alice USA alleges creditors organized an “illegal cartel” that has conspired to block the company from refinance its debt.

Market participants have said they expect creditors to continue to organize under co-ops as the case winds its way through the courts. The agreements, which bind creditors together to negotiate with one voice, have proved invaluable in situations like Altice France and DISH Networks where creditors fought off aggressive moves by the issuers and enjoyed outsized returns.

Altice France’s roughly USD 20bn cross border co-op paved the way for a landmark transaction in which the telecom group agreed give creditors equity in exchange for extending maturities and reducing leverage.

Minority rights

Alongside tighter documentation, advisors are seeing a shift in how minority lenders approach stressed situations.

Shai Schmidt, a partner at Glenn Agre who frequently represents creditors left out of majority ad hoc groups, noted that CLOs and other minority holders are becoming more sophisticated, engaging advisors earlier and organizing more proactively through cooperation agreements.

As a result, those lenders usually organize more effectively and can maximize their leverage, including through minority cooperation agreements.

A sizeable minority bondholder group to Saks advised by Glenn Agre and Greenhill formed in the middle of 2025 during which the group signed a landmark cooperation agreement and mulled its own financing proposal for the issuer, Debtwire previously reported.

“A clear understanding of lender protections under the credit agreement, combined with early engagement with the borrower and other stakeholders, is critical. LMEs nowadays tend to be more inclusive, which makes early organization by minority lenders even more important,” said Schmidt.

Likewise, some market players say that the most important opportunities in 2026 are likely to arise not in late‑stage distress, but earlier when stress is visible and optionality remains.

“I’m watching for the point where stress becomes visible but before distress becomes inevitable,” said Kunal Kamlani, senior managing director at M3 Partners. “That’s the window where the most value can be saved.”

Kamlani said many boards of stressed companies delay action while pursuing contingent solutions that never materialize. “Once liquidity becomes the problem, options disappear quickly,” he said.