In a turbulent year defined by a return to a more protectionist approach in the United States, tariffs remain a work in progress. Their impact has been felt everywhere, particularly on global supply chains and input costs, causing inflationary pressures for both businesses and consumers and creating difficulties for business planning. Still, the worst trade war fears have fallen away, and the global economy has shown itself to be remarkably resilient (notwithstanding some of the shocks experienced this past year).

Economic growth has been modest and is likely to continue to be so in 2026, eased by a slight fall in interest rates, particularly in the G7 countries. We have thus far avoided a recessionary environment and, while there is a steady flow of corporate restructurings, the long-anticipated wave has yet to materialize.

Investor confidence in technology – specifically artificial intelligence (AI) – remains strong and has done a lot to sustain equity markets, but there are voices urging caution and fears of a correction. Other concerns remain, including conflicts in Russia/Ukraine and the Middle East, but these have also driven spending on defense, energy security, and wider innovation.

Many countries are experiencing political instability and fiscal challenges that impact business confidence. However, given the challenges, 2025 turned out to be better than expected. Forecasting for the coming year remains cautiously optimistic.

Restructuring activity is likely to increase in 2026, but not at systemic levels and with varied impacts across markets.

US market dynamics are evolving

The prevailing view of the 2026 US economic outlook is cautious optimism. Inflation has cooled from its 2024 peak, consumer spending remains steady, and the technology sector continues to anchor growth.

Yet risks are evident: Tariffs burden manufacturing and agriculture, and mass layoffs at behemoths, including Verizon, Amazon, and UPS, indicate fragility in the labor market. Structural weaknesses in commercial real estate, healthcare, and automotive manufacturing persist while fiscal and political uncertainty clouds investor confidence. Consensus predictions point to moderate growth, with volatility likely a defining feature of 2026.

Private credit has expanded rapidly, offering flexible alternatives to traditional lending and reshaping the restructuring landscape. Moody’s projects global private credit assets under management will reach $3 trillion by 2028, driven largely by US and European growth. Institutional investors fuel middle market and distressed financing while banks remain constrained by regulation and risk appetite. This shift positions private credit as a growing influential presence in restructurings.

Companies continue to use liability management exercises (LMEs) to manage debt burdens, leveraging loose documentation and abundant capital. Borrowers deploy creative structures to extend maturities and preserve liquidity. While these techniques have drawn scrutiny and litigation, they remain a favored tool for parties seeking solutions outside formal proceedings.

Chapter 11 remains the cornerstone of corporate restructuring in the US, but its role is evolving as companies weigh costs, timing, and creditor dynamics. Large-cap debtors often pursue pre-packaged or pre-negotiated filings to minimize disruption while out of court solutions – from exchange offers to LMEs – compete with formal proceedings.

Simultaneously, debtors are increasingly exploring foreign jurisdictions with lower costs and fewer hurdles, underscoring the global dimension of restructuring strategy. The result is a market defined by flexibility and competition, where both debtors and creditors must adapt to an expanding toolkit.

A mixed UK outlook

The UK government, though committed to economic growth, has been beset with social and political pressures that have aggravated some of its fiscal challenges. Some government decisions are controversial and impact business confidence, with the recent Budget 2025 speech providing for substantial increases in the personal tax burden of many employees, savers, and pensioners.

The government is also rolling out reforms to employment legislation, which, taken with the added cost to employers of national insurance contributions, many fear will lead to greater unemployment and dampen entrepreneurship. However, modest economic growth has occurred and is expected to continue in the coming year.

2025 has seen steady growth in private credit. Certain sectors of the UK economy are showing more stress and vulnerability, and there is some anecdotal evidence of direct lenders being better prepared to enforce.

As interest rates have begun to ease, there is also evidence that competition for deals will rise. As with the US, there is a concomitant increase in LMEs to reduce debt burdens by corporate borrowers, facilitated by the “cov-lite” nature of much of the finance documentation. But borrowers and lenders are aware of the litigation risks and uncertainties.

There has also been a pushback in the origination of new finance documentation against liability management, with the introduction of embedded contractual defenses (referred to as LME blockers).

London remains a center for international restructuring, particularly where there is an English law element in the finance documentation or where there has been a shift in the center of main interest. The introduction of a restructuring plan under Part 26A of the Companies Act 2006 in 2020 and the ability to cross-class cram-down has added to the UK market’s attractiveness.

However, in 2025, there have been a series of cases focused on the treatment of out-of-the-money creditors and the extent to which they should share in the benefits of the restructuring, and this has generated some market uncertainty. To address this, a new practice statement was introduced in September 2025 and one case, Waldorf, is heading for the UK Supreme Court.

France sees record insolvencies

As expected, France saw a record level of insolvency proceedings in 2025. Experts anticipate that by the end of the year, the number of insolvency proceedings will reach 67,500 (23% up on the 2016 to 2019 average).

The trend for 2026 is likely to be similar: The economic landscape remains gloomy, with a slow increase in gross domestic product and the political and geopolitical environment remaining unstable.

The most severely hit sectors are construction, hospitality and catering, retail, and business-to-business services. In terms of jobs at stake, the industrial sector suffered the biggest hit with 16,000 jobs directly impacted by the opening of insolvency proceedings during Q3 2025, 20% of the total for Q3 2025. That is the result of an ongoing decrease in domestic production and demand, in contrast to production overcapacities elsewhere and high energy costs impacting domestic competitiveness.

We expect 2026 to bring a challenging environment where the availability of strong restructuring tools will be helpful. In this respect, the use of accelerated safeguard proceedings (sauvegarde accélérée), which allow for the implementation of restructuring plans via a cross-class cram-down of creditors and shareholders, has proven to be an efficient way to quickly implement major financial restructurings and preserve value for stakeholders that remained in the money.

Some great examples include the Atos SE restructuring implemented in October 2024, the restructuring of offshore services group Bourbon in July 2025, and the restructuring of childcare service provider People & Baby in March 2025. LME schemes are closely watched by the market, as Altice ran the largest LME scheme ever in Europe in 2025, showing the tool could prove efficient in France.

The German economy feels the pressure

The German corporate restructuring market is entering a phase defined less by a broad insolvency wave and more by structural, proactive transformation. The current economy continues to feel pressure from high operating costs, geopolitical instability, and industrial transformation. The number of insolvencies among companies with more than 1,000 employees has increased noticeably, particularly in the second half of the year, and this trend is expected to continue in 2026.

Restructuring activities, particularly in the automotive, engineering, and chemical sectors, focus on operational efficiency, capacity adjustments, and site closures. Across all industries, large-scale employee restructuring is taking place. This trend is set to continue into 2026 in certain industry sectors driven by the delayed – but persistent – need for companies to adapt their business models.

A significant development is the accelerated growth of private credit as an alternative source of capital in distressed and special situations. Facing tighter regulatory constraints and capital requirements, traditional bank finance is increasingly risk-averse, especially in the current economy.

This vacuum is filled by private debt funds offering flexible, bespoke rescue financing, bridge loans, and refinancing solutions, particularly for the small- and mid-market. This means restructuring transactions could become more complex, involving more non-bank creditor groups in the future.

LME remains a technique of continued interest. The German equivalent – the Stabilization and Restructuring Framework of Companies Act (StaRUG) – is a recognized tool for preventive reorganization, offering debtors a discreet, nonpublic path to restructuring. In 2025, there were several prominent cases, such as BayWa AG and Varta AG.

It is worth mentioning that StaRUG is also being used for purposes beyond pure financial restructuring, such as the entry of Porsche AG as an investor of Varta AG and the squeeze out of all existing stockholders. However, there remain practical issues relating to the use of StaRUG-plans, specifically concerning establishing legally robust valuation methodologies to enable cross-class cram-downs.

Conclusion

Some 2025 themes will continue to characterize the coming year, most notably cautious optimism driven by confidence in liquidity, AI, and tech, balanced against concerns over ongoing tariff reform, political instability, fiscal challenges, regional conflict, and the risk of a correction.

While a major surge in restructurings is improbable, overall activity is trending upward, and impact varies by market.