European Private Credit 2026: Deployment Pressure, Downside Discipline and the New Restructuring Reality

The European private credit market has continued its ascent in both scale and complexity, surpassing the $500 billion mark and on track to double by the end of the decade. Yet this growth has been accompanied by a landscape defined by contradictions. On the one hand, private credit is expanding rapidly, propelled by investor demand and its increasing relevance as an alternative to bank lending. On the other, lenders are grappling with a challenging deployment environment, heightened pressure on returns, shifting legal frameworks, and growing uncertainty in how credit risk should be assessed and managed.

These tensions were at the heart of our 2026 Overview Breakfast, where insights were shared by panellists Christopher McLean (Partner, Head of Debt & Capital Advisory at Grant Thornton UK), Bevis Metcalfe (Co-chair of Financial Restructuring Group at Cadwalader, Wickersham & Taft LLP), Amin Doulai, and Andrew Brown (Finance & Restructuring Partners at King & Spalding). Their collective perspectives paint a picture of a market experiencing both maturity and growing pains.

1) Market conditions: borrower-friendly, but not friction-free

The panel described 2025 as a highly competitive, borrower-friendly year for strong credits with tight pricing, sponsor-friendly terms and aggressive opening positions in documentation negotiations. While covenant-light structures are firmly the norm, there was broad consensus that the mid-market in Europe still benefits from relatively robust “core” documentary protections compared with some US constructs (unrestricted subsidiary concepts do not exist in Europe for instance).

One recurring observation is that there are limits to margin compression. Many funds face structural return constraints, and pricing falling materially below a certain threshold becomes difficult to justify to LPs, particularly for strategies marketed as senior secured.

The other reality is uncertainty. The panel reflected on the unexpected tariff shocks of early 2025 and how quickly “macro surprises” can hit deal volumes. It is impossible to predict the next market surprise, and underwriting discipline will allow lenders to react rather than scramble.

2) Diversification: strategic expansion or a deployment problem?

A major theme was the shift of private credit funds into non-traditional areas: PIK and preferred, holdco financing, sponsor-less transactions, asset-based / asset-backed structures, real estate, and geographic expansion (including increasing activity in the Middle East with Saudi Arabia repeatedly cited as a market attracting growing attention).

A candid observation: many managers are seeking situations where they can be “the only shop in town,” rather than competing as “pitch number 14” on a mainstream mid-market process. This is partly strategic but also a function of deployment pressure.

The discussion also stressed a skills gap: moving up the capital stack or into stressed situations requires a different underwriting mindset. A repeated warning was that many newer funds have limited lived experience of distress and that junior capital outcomes can be binary (you get paid in full or not at all). As a result, the market is seeing more specialist hiring from restructuring, ABL, asset finance and distressed backgrounds.

3) The real documentation battleground: financial definitions

While covenant-light continues, the panel’s sharpest point was that the real risk is not the presence or absence of a covenant, it is the integrity of the financial definitions behind it.

A strong consensus emerged: lenders should spend less time fixating on “headline” features (like equity cures) and more time focusing on:

• EBITDA add-backs and adjustments
• revenue, cost and synergy assumptions
• leverage and net debt definitions
• the delta over time between what the financial statements show and what the credit agreement permits

Equity cures, while common (often capped at 3–4), were described as largely a negotiating tool and rarely used in practice. By contrast, weak or overly flexible financial definitions can quietly erode documentary protection over time even when the deal looks “safe” at Day 1.

4) Continuation funds & portability: same borrower, different sponsor

A practical insight on continuation fund transactions: from a lender’s perspective, the borrower’s credit metrics may be unchanged but the sponsor support profile may not be.

The panel highlighted deals where continuation transactions triggered a refinancing or re-underwriting process, not because the company changed, but because the “sponsor behind the sponsor” did. A move from, for example, a multi-billion flagship fund to a smaller continuation vehicle can change the analysis around:

• willingness and ability to support the asset in downside scenarios
• capacity to “write a cheque” if things go wrong
• long-term strategic posture of the new owner

This is also where portability comes into play. While portability can be highly useful when well-negotiated (no event of default at transfer, clear conditions, and lender comfort with the incoming sponsor), the panel noted two realities:

• portability negotiations can become so conditional that their practical value is reduced; and
• sponsors often pursue change-of-control waivers / amendments instead of full portability provisions embedded at signing.

Sponsor change is increasingly treated as a real underwriting event, even where credit metrics remain stable.

5) Petrofac and the restructuring plan “fairness reset”

The most animated part of the conversation concerned Petrofac and what it signals for UK restructuring plans.

The panel’s view was balanced: Petrofac is not “the death” of Part 26A restructuring plans but it is a meaningful reset in how fairness, process and value allocation are assessed.

Several themes stood out:

• Fairness is for the court not just for senior creditors. A key “positive teaching” was that it is properly the company’s job to prove that the plan is fair; fairness cannot simply be asserted by the in-the-money class.
• Out-of-the-money creditors create philosophical tension. Petrofac raises hard questions about why parties with no economic interest “should have a meaningful seat at the table” but it also reinforces that you cannot design a statutory process that allocates all plan benefits to one class while excluding everyone else.
• New money economics are now under a brighter spotlight. The panel highlighted the instinctive judicial discomfort when new money providers appear to extract disproportionate upside. They described the Petrofac facts as unusually hard to justify and a reminder that “bad facts can make bad law.”
• Restructuring plans now require deeper evidence. The “benefit statement” concept has evolved: from relevant alternative and valuation, to analysing who contributes and who benefits, and now increasingly into the fairness of new money pricing potentially requiring more market testing and expert evidence.
• Mediation and settlements are likely to increase. If the court process creates leverage for challengers pre-closing, parties will naturally use pre-hearing engagement and mediated settlements more often, particularly where nuisance value can unlock a consensual outcome.

The net effect is not that restructuring plans are obsolete. It is that they are becoming more process-heavy, evidence-driven and sensitive to benefit allocation, particularly around new money and dissenting or out-of-the-money stakeholders.

The takeaway

European private credit remains robust and innovative. But as the market matures, growth alone is no longer the defining theme. Discipline in underwriting, clarity in documentation, and preparedness for restructuring scenarios are becoming decisive differentiators.

Looking into 2026, the panel’s collective message was one of selective optimism tempered by rigour. In a market where capital is abundant, but certainty is scarce, governance, documentation and downside planning are once again at the forefront.