Financing in 2026

Debt markets were resilient in 2025. Strong issuer fundamentals met with a more accommodating economic backdrop to drive higher volumes and tighter spreads across almost all areas of financing. Concerns around tariff-related disruption largely failed to materialise – aside from a brief period of volatility in the wake of Liberation Day – and credit markets were able to quietly absorb further shocks, including signs of increased fiscal distress in France and a US government shutdown. While refinancing and repricing continued to dominate activity across the board, acquisition-related financing gained momentum, supported in particular by the consumer, technology and industrials sectors.

The outlook for 2026 is promising, with debt markets well-positioned to support further event-driven financing as M&A activity rebounds. Against this positive backdrop, we explore some of the key developments and emerging trends in European debt markets and offer insight into the factors that may drive market dynamics and impact financing strategies in 2026.

Private credit: Expansion amid increased scrutiny

In 2025, even during periods of geopolitically driven market volatility, private credit (PC) demonstrated its ability to offer flexible, tailored and efficiently executed funding solutions to a diverse range of borrowers, from innovative companies in sectors such as technology and healthcare to entities in distress requiring access to higher leverage. The market has also increased in capacity, with a range of tools being employed to deepen the capital pool.

To date, PC has operated mostly in the sponsor-backed universe. More recently, PC has been positively targeting non-sponsor-backed corporates, including some of the largest investment grade entities, aiming to compete directly with traditional bank and capital markets funding. This expansion beyond PC’s core customer base, coupled with an increasingly diverse product offering, suggests PC is poised for further growth and expansion in 2026 and beyond.

Diversification of product offering

PC has become an increasingly important source of capital for event-driven financing and is well-positioned to benefit from the expected uptick in global M&A activity in 2026. It is, however, increasingly being deployed beyond core direct lending and acquisition finance, for example, into asset-backed finance, infrastructure, higher risk commercial real estate and special situations.

This trend has been maturing for some time in the US with several PC funds launching asset-based financing (ABF) or asset-based loan (ABL) strategies with dedicated funds, whilst others have partnered with or purchased ABF/ABL portfolios from other financial institutions. This is also anticipated as a growth area in Europe – with yield premiums, asset collateralisation and scalability opportunities being attractive features to an ever-widening investor pool, including reinsurance firms, pension funds, sovereign wealth funds, endowments and family offices.

Shifting regulatory landscape

The rapid growth of PC has attracted regulatory attention. Regulators and policymakers from across the UK, EU and globally are examining its implications, particularly the interconnectedness between PC and the broader financial system, most notably banks. While the future regulatory trajectory remains uncertain, it will need to be balanced against the significant role PC clearly has to play in supporting wider economic growth.

Debt capital markets: Regime reform and innovation

European debt capital markets delivered strong performance in 2025, supported by robust investor demand and lower borrowing costs. US issuers capitalised on these favourable conditions, with several high-profile transactions, including first-time euro prints from leading technology and healthcare names. This “reverse Yankee” trend is expected to continue into 2026, alongside a potential increase in corporate hybrid issuance, following notable subordinated deals that were met with strong investor demand towards the end of 2025.

Prospectus regime reform

As issuance continues at pace, the regulatory framework underpinning the market is undergoing significant change, with reforms to both the UK and EU prospectus regimes. For issuers of UK main market listed debt, the new public offers and admissions to trading regime will replace the existing UK prospectus regime on 19 January 2026. While most of the existing rules relating to prospectuses and admissions to trading will be carried across into the new regime broadly as they are, there are some targeted changes for issuers of debt securities, which aim to reduce the costs of admission and make capital raising easier. The changes are also designed to facilitate the issuance of low denomination bonds, which will be of interest to eligible issuers and could pave the way for a stronger retail investor presence in the UK corporate bond market.

Innovation driving change

Technology and innovation are increasingly shaping the debt capital markets. In 2026, the UK government is expected to deliver its pilot Digital Gilt Instrument (DIGIT), a digitally native, UK government debt instrument, issued on a Distributed Ledger Technology (DLT) platform within HM Treasury’s new Digital Securities Sandbox (DSS). The DSS has been created to explore the role of DLT and other technologies in the issuance, trading and settlement of securities.

The DIGIT pilot’s objective is to boost development of DLT infrastructure across UK capital markets. It remains to be seen whether this experimental issuance, coupled with political support for digital asset initiatives more broadly, will drive increased interest in digital bonds.

Restructuring and special situations: An expanding toolkit

Throughout 2025, special situations and restructuring activity spanned a broad spectrum of industries with increasingly innovative approaches deployed to provide liquidity and/or implement turnarounds.

Liability management exercises (LMEs) have featured more prominently during initial phases of financial distress, with European markets embracing more assertive techniques as stakeholders continue to test the limits of credit documentation including through the use of enforcement and distressed disposal mechanisms to threaten or implement non-pro rata transactions. As a result, there is an increased focus on LME protections at origination and when negotiating amendments.

M&A and accelerated M&A transactions have continued to provide solutions, frequently executed outside formal proceedings, although pre-packs remain popular and the Part 26A restructuring plan (RP) has proven highly effective. In summer, we advised on the first “pre-arranged” RP, a novel use of the tool to facilitate the sale and restructuring of Poundland.

A uniquely flexible tool

The RP has been deployed across diverse scenarios, including its first use by a US-based company as a fall back to an exchange offer process. Inevitably, given the ability of the RP to impose a compromise on dissenting stakeholders, with scope to target specific liabilities and without the constraint of an absolute priority rule, some cases have been contentious. This has contributed to a growing body of judicial guidance, including from the Court of Appeal when it considered RPs proposed by Thames Water and Petrofac.

Early options planning

As distressed companies continue to navigate persistent headwinds, early consideration of strategic options will be key. Guidance from the courts will continue to shape the landscape for those seeking to extend runway and drive successful turnarounds. Evolving stakeholder dynamics will need to be factored in, with PC funds playing a more significant role. We are also starting to see private equity sponsors take a more active role when managing distressed portfolio companies to obtain more runway, achieve burden sharing with creditors and, in some cases, to achieve an orderly handover to creditors. We anticipate that the RP will remain a leading tool both in the courts and driving consensual solutions behind the scenes, although it will continue to be benchmarked against alternative implementation options.

Looking ahead

The outlook for the debt markets is broadly positive, underpinned by a resilience which was notable throughout 2025. Looking ahead, the evolution of PC, regulatory reform, technology and digitisation, and innovation in liability management techniques and turnaround tools, are expected to be key drivers of change. These themes look set to shape the trajectory of the credit markets at a macro level while also influencing how individual businesses approach their funding strategies in an increasingly complex and dynamic environment.