The summer lull in European financial markets didn’t extend to distressed investing this year, and August saw a flurry of activity. In particular it was the loan space which saw the uptick in activity which is typically quieter than the bond market due to the private nature of the loans market. There was a sharp increase in the number of loans classified as stressed or distressed from 75 loans from 43 companies at the end of July to 97 loans from 49 companies at the end of August1.
Names such as Inovie, Biscuit International, Kloeckner Pentaplast and Merlin Entertainments made headlines in the financial press, making it clear that economic & regulatory headwinds and the recent perfect storm of issues for corporates (including the Ukraine war, supply distruptions, tariff uncertainty and lacklustre European growth) are sector-wide.
A particularly interesting story is Merlin, which was downgraded to triple-C by S&P on 20 August. The theme park operator made the headlines for the ratings downgrade itself, but also because it now impacts triple-C baskets of all affected CLOs with S&P as a rating provider. S&P cited "persistent high cash burn" and an "unsustainable" capital structure as the reasons the downgrade.
Another recent area of interest has been court rulings around liability management exercises (LMEs). As detailed in our previous piece, it has become apparent that it is no longer assumed that investors in companies that are restructuring (either operationally or financially or both) can sit on the sidelines and expect fair treatment.
The trend of aggressive LMEs first started in the US and it is now being seen on European shores, although current LME trends in the US show a shift from aggressive-style transactions toward more benign, whilst in Europe the opposite is true. ‘Violence’ associated with LMEs was considered to be less of a threat in Europe due to law generally providing more protection to minority creditors, more stringent restrictions on what a company’s directors may do, and risks to investor blacklisting.
LMEs have become increasingly prevalent as companies seek to manage their debt obligations without resorting to formal bankruptcy proceedings. In response to the proliferation of LMEs, creditors are actively seeking protective measures to safeguard their positions against future disadvantageous transactions. Protective measures can include cooperative agreements between lenders and the potential litigation threat from minority investors.
Recent court rulings in the UK have heavily leaned into fairness with respect to minority creditors, as seen in Waldorf and Petrofac, which is adding a level of complexity with respect to restructurings. Whilst complexities surrounding LMEs for larger capital structures will persist for the foreseeable, within the European mid-market we anticipate that conventional restructurings will continue to dominate due to simpler capital structures and the ability to influence restructuring proceedings. This can make achieving a consensual deal simpler in theory, which positions us uniquely to deliver meaningful results.
With continued macro uncertainties surrounding global politics, weak growth across many European sectors, cost pressures and tighter financial conditions, this is likely to lead to a continued uptick in opportunities as special situations investors. The size of this market opportunity and the fact that the European mid-market is less competitive has led to strong performance year-to-date.
For investors with the flexibility to pursue a special situations credit approach, the European mid-market presents an exciting opportunity set with the potential to deliver compelling risk-adjusted returns. We anticipate that this opportunity will be prolonged and that there is a strong case for investors to add an allocation to the strategy.
1 Top of the Flops — European Distressed Watchlist August 2025 (9fin).
Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.
This material is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This material does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This material is not available for distribution to investors in jurisdictions where such distribution would be prohibited.
RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc. (RBC GAM Inc.), RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management (UK) Limited (RBC GAM-UK), and RBC Global Asset Management (Asia) Limited (RBC GAM-Asia), which are separate, but affiliated subsidiaries of RBC.
In Canada, this material is provided by RBC GAM Inc. (including PH&N Institutional), which is regulated by each provincial and territorial securities commission. In the United States (US), this material is provided by RBC GAM-US, a federally registered investment adviser. In the United Kingdom (UK) and Australia this material is provided by RBC GAM-UK, which is authorised and regulated by the UK Financial Conduct Authority. In the European Economic Area (EEA), this material is provided by BlueBay Funds Management Company S.A. (BBFM S.A.), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany, France, Sweden, Italy, Spain and Netherlands the BBFM S.A. is operating under a branch passport pursuant to the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). In Spain, BlueBay Funds Management S.A is registered with the CNMV under No. 607. In Switzerland, this material is provided by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. In Japan, this material is provided by BlueBay Asset Management International Limited, which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Asia, this material is provided by RBC GAM-Asia, which is licensed by the Securities and Futures Commission (SFC) in Hong Kong.
Additional information about RBC GAM may be found at www.rbcgam.com.
This material has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where appropriate and permissible, be distributed by the above-listed entities in their respective jurisdictions.
Any investment and economic outlook information contained in this material has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions in such information.
Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.
RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information.
Past performance is not indicative of future results. It is not possible to invest directly in an index.
Some of the statements contained in this material may be considered forward-looking statements which provide current expectations or forecasts of future results or events. Forward-looking statements are not guarantees of future performance or events and involve risks and uncertainties. Do not place undue reliance on these statements because actual results or events may differ materially from those described in such forward-looking statements as a result of various factors. Before making any investment decisions, we encourage you to consider all relevant factors carefully.
® / TM Trademark(s) of Royal Bank of Canada. Used under license.
© RBC Global Asset Management Inc., 2026
Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.
Please choose from the following
We are unable to market if your country is not listed.
You may only access the public pages of our website.
