Location
Please select your investor type by clicking on a box:
We are unable to market if your country is not listed.
You may only access the public pages of our website.
Special situations: a favourable backdrop for European event-driven credit
With the second half of the year well underway, we look at distressed activity over the summer and highlight the ongoing market opportunity in the asset class.
Distress heated up in the summer slowdown
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.
Aggressive LMEs on the shores of Europe
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.
A mid-market focus: less competition
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).
Sign up for insights by email
Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.
This document is a marketing communication and it may be produced and issued by the following entities: in the European Economic Area (EEA), by BlueBay Funds Management Company S.A. (BBFM S.A.), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany, 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 the United Kingdom (UK) by RBC Global Asset Management (UK) Limited (RBC GAM UK), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission (SEC) and a member of the National Futures Association (NFA) as authorised by the US Commodity Futures Trading Commission (CFTC). In Switzerland, 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. The place of performance is at the registered office of the Representative. The courts at the registered office of the Swiss representative or at the registered office or place of residence of the investor shall have jurisdiction pertaining to claims in connection with the offering and/or advertising of shares in Switzerland. The Prospectus, the Key Investor Information Documents (KIIDs), the Packaged Retail and Insurance-based Investment Products - Key Information Documents (PRIIPs KID), where applicable, the Articles of Incorporation and any other document required, such as the Annual and Semi-Annual Reports, may be obtained free of charge from the Representative in Switzerland. In Japan, by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Asia, by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong. In Australia, RBC GAM UK is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of financial services as it is regulated by the FCA under the laws of the UK which differ from Australian laws. In Canada, by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. RBC GAM UK is not registered under securities laws and is relying on the international dealer exemption under applicable provincial securities legislation, which permits RBC GAM UK to carry out certain specified dealer activities for those Canadian residents that qualify as "a Canadian permitted client”, as such term is defined under applicable securities legislation. In the United States, by RBC Global Asset Management (U.S.) Inc. ("RBC GAM-US"), an SEC registered investment adviser. The entities noted above are collectively referred to as “RBC BlueBay” within this document. The registrations and memberships noted should not be interpreted as an endorsement or approval of RBC BlueBay by the respective licensing or registering authorities. Not all products, services or investments described herein are available in all jurisdictions and some are available on a limited basis only, due to local regulatory and legal requirements.
This document is intended only for “Professional Clients” and “Eligible Counterparties” (as defined by the Markets in Financial Instruments Directive (“MiFID”) or the FCA); or in Switzerland for “Qualified Investors”, as defined in Article 10 of the Swiss Collective Investment Schemes Act and its implementing ordinance, or in the US by “Accredited Investors” (as defined in the Securities Act of 1933) or “Qualified Purchasers” (as defined in the Investment Company Act of 1940) as applicable and should not be relied upon by any other category of customer.
Unless otherwise stated, all data has been sourced by RBC BlueBay. To the best of RBC BlueBay’s knowledge and belief this document is true and accurate at the date hereof. RBC BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. Opinions and estimates constitute our judgment and are subject to change without notice. RBC BlueBay does not provide investment or other advice and nothing in this document constitutes any advice, nor should be interpreted as such. This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product in any jurisdiction and is for information purposes only.
No part of this document may be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose in any manner without the prior written permission of RBC BlueBay. Copyright 2025 © RBC BlueBay. RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management Inc., RBC Global Asset Management (UK) Limited and RBC Global Asset Management (Asia) Limited, which are separate, but affiliated corporate entities. ® / Registered trademark(s) of Royal Bank of Canada and BlueBay Asset Management (Services) Ltd. Used under licence. BlueBay Funds Management Company S.A., registered office 4, Boulevard Royal L-2449 Luxembourg, company registered in Luxembourg number B88445. RBC Global Asset Management (UK) Limited, registered office 100 Bishopsgate, London EC2N 4AA, registered in England and Wales number 03647343. All rights reserved.
Sign up for insights by email
Subscribe now to receive the latest investment and economic insights from our experts, sent straight to your inbox.