'Distressed' is one of the most overused words in our part of the market in 2025. It is applied to assets that are merely cyclical, to credit that is merely repriced, and to operators who are merely tired. Real distress is something more specific, and identifying it accurately matters because the structures, the timelines, and the returns differ enormously between actual distress and the cosmetic version of it.
The classical definition is no longer enough
The textbook definition of distress is straightforward: a borrower in default or near-default, a security trading well below par, a forced or quasi-forced sale, and an acquirer in a position to take ownership through legal or commercial process. That definition still applies in some segments — particularly in publicly-listed credit during sharp cycles — but it captures only a small fraction of what we are seeing in private markets in 2025.
Most of the European private-credit distress we are working through is not a default-driven phenomenon. It is a refinancing-driven phenomenon. Borrowers are paying their debt service. They simply cannot refinance on terms that are economically viable. The result looks different from classical distress in three important ways.
Three fact patterns
Pattern one: the performing-but-unrefinanceable loan
The most common pattern we see in 2025 is a senior real estate or asset-backed loan that is performing on its current terms but cannot be refinanced. The borrower is paying interest and amortisation. The lender does not technically have a problem to mark down. The asset, however, has deteriorated in value to the point where the LTV at refinancing would exceed any rational lender's appetite.
What happens is a slow degradation. The borrower extends; the lender accepts; the structure remains nominally performing while the real value has shifted underneath. We have been buying these loans, in size, throughout 2025. The pricing is meaningfully below par despite the technical performance, because the institutions holding them know the technical performance is decorative.
Pattern two: the operating distress that the credit doesn't reflect
The second pattern is harder to identify and, consequently, more interesting to underwrite. A business is operationally underperforming — declining revenues, deteriorating margin, rising working capital — but the credit instruments above it remain technically intact because covenants were written generously and amortisation profiles are extended. The credit holds. The business does not.
We are seeing this most clearly in middle-market UK and continental businesses that took on private credit in the 2018-2022 vintage, often at multiples of EBITDA that proved aggressive. The credit has not yet failed. The business has. The right answer for these is rarely to buy the existing credit. It is, more often, to provide rescue equity in exchange for control, alongside an operating partner who can rebuild the business.
Pattern three: the orphaned asset
The third pattern is structural rather than financial. A perfectly serviceable asset — a development scheme, a portfolio of operating real estate, a collection of cash-flowing infrastructure — sits in a vehicle whose owner can no longer hold it. The fund is past its life. The corporate is divesting. The family office is consolidating. The asset is fine. The owner is not.
This is the cleanest acquisition profile we work with. We are not buying distressed assets. We are buying intelligent assets from holders who, for reasons unrelated to the asset, can no longer hold them. The pricing reflects the holder's situation, not the asset's value. We have closed five positions in this profile during 2025.
"Real distress is rarely about the asset. It is almost always about the holder."
How these differ from prior cycles
The 2008-2011 European distressed cycle was a banking-system phenomenon, driven by capital constraints and forced deleveraging. Pricing was unambiguous because the banks needed exits. The 2020 cycle was short, sharp, and substantially absorbed by central bank action. Neither is a useful template for what we are seeing now.
The 2025 cycle is private. It is dispersed across hundreds of small holders rather than concentrated in a few systemic ones. It is opaque, because the technical performance of the underlying instruments often masks the real situation. And it is slow. There is no single moment of capitulation. There is, instead, a steady erosion of the holders' willingness to keep holding, asset by asset, fund by fund, family office by family office.
The implications for an acquirer are significant. The opportunity set is larger but harder to find. Pricing is messier. Structuring is more bespoke. Holding periods are longer. And the work required to identify the genuinely attractive positions is much greater than in cycles where the pricing was, in itself, a signal.
Structures we are using.
Three structures account for substantially all of our distressed deployment in 2025:
Direct loan acquisition through SPVs. Where we identify performing-but-unrefinanceable loans, we acquire them directly via a single-purpose vehicle, often alongside a specialist servicer who handles the operational work of borrower negotiation and asset realisation. Position sizes range from £15m to £80m.
Rescue equity with control. Where the credit is intact but the business underneath is not, we provide rescue equity at a meaningful discount to where any new majority equity would otherwise come in, alongside an operating partner who takes operational control. Position sizes range from £20m to £60m.
Direct asset acquisition from orphaned holders. Where the asset is fine and the holder is not, we acquire the asset directly, typically with the holder's existing structure transferring to ours. Position sizes range from £10m to £150m.
None of these is novel. What distinguishes our approach is the willingness to source these positions one by one, through the network of relationships we have built over a decade, rather than through intermediated processes that compress pricing.
What we are not doing
Three categories of apparent distress that we currently regard as misnamed and decline to participate in:
Repriced public credit at par minus a few points. The European high-yield market has produced a great deal of nominally-distressed paper in 2024-2025. Most of it is repriced rather than distressed. The work of distinguishing one from the other is significant, and the returns we have observed for capital deployed broadly in this space have been mediocre.
'Distressed' funds without a control orientation. Several distressed funds have raised capital in 2024-2025 without the structures or the governance rights to actually take control of underperforming positions. The strategy reduces to buying-and-hoping. We do not invest in funds. We invest alongside operators with control.
Cosmetic distress in over-bid auctions. Anything that comes to market through a competitive process at attractive headline pricing is rarely as attractive as it appears. We have lost more competitive auctions than we have won, and we are entirely comfortable with that ratio.
The work the word doesn't capture
What 'distressed' does not capture, in any of its uses, is the sheer volume of work required to identify, underwrite, and execute on real opportunities in this space. The pricing is bespoke. The structures are bespoke. The relationships matter more than the analytics. The willingness to walk away matters more than the willingness to deploy.
The capital that performs well in this kind of cycle is not capital that can write the largest cheque. It is capital that can identify the smallest correctly-priced opportunity, do the work, and structure the position to its specific dynamics. That is the kind of capital we have built ourselves to be.