Capitalising on dislocation and complexity - Opportunistic credit in 2026

The private credit market entered 2026 at a pivotal juncture. While the asset class has matured over recent years, now matching the broadly syndicated loan market at approximately $1.8tn in global assets under management¹, this year has to date provided both significant opportunities and fresh challenges for private capital.

Against a backdrop of economic uncertainty, mounting geopolitical tensions and accelerating technological disruption, private credit funds and other lenders with flexible, opportunistic credit mandates are embracing this dislocation and are positioning themselves to capitalise on an increasingly complex landscape. In this article we examine developments shaping the opportunistic credit outlook: (1) the mainstreaming of capital solutions strategies as sponsors seek liquidity in constrained exit markets, (2) sector rotation driven by geopolitical imperatives and AI-driven disruption, (3) the crystallisation of stressed and distressed opportunities as debt maturities mount, and (4) competition and deployment pressures.

Throughout, a common thread emerges: the market rewards private credit funds and alternative lenders able to navigate dislocation and complexity - whether structural, situational or documentary - and those building these capabilities now will be better positioned to make the most of the opportunities ahead.

Capital solutions: From the margins to the mainstream

Perhaps the most striking trend shaping opportunistic finance of recent years now carried into 2026 is the rapid expansion of capital solutions strategies. For private credit funds evaluating their strategic positioning, this is an area worthy of close attention: capital solutions are transitioning from a niche offering to an increasingly prominent component of the modern private credit platform. The market data underscores this shift: in 2024, direct lending accounted for 50% of new LP allocations to private credit, down from 58% in 2023², whilst opportunistic credit and special situations strategies attracted growing interest from allocators seeking higher returns beyond traditional senior lending. Structures offering hybrid debt and equity financing have scaled at pace, driven by private equity sponsors facing constrained exit markets and heightened pressure to return capital to investors.

The borrower market is increasingly bifurcated into what might be described as the "haves" and the "have-nots"³: companies able to access traditional capital markets on competitive terms, and highly leveraged issuers with limited options willing to pay significantly more for a solutions-based approach. For capital solutions providers, this bifurcation is not a temporary dislocation but a structural feature of the post-low-rate landscape – many of today's most complex capital structures are a direct by-product of the aggressive LBO activity and cheap debt accumulation of the 2018-21 vintage - with those borrowers now facing a materially different environment.

The premium that capital solutions providers can command for bespoke solutions derives from several sources. First, there is structural complexity: for example, holdco PIK or preferred equity, minority recapitalisations and NAV facilities each have inherent structural complexities not found in opco-level senior financings and often require analysis of fund structures, waterfall mechanics and sponsor economics in the holding structures. Second, there is (either through business performance or existing lender retrenchment) situational complexity: these transactions often arise when sponsors face liquidity constraints, creating time pressure and information asymmetry that reward lenders with proven execution capability and robust diligence infrastructure. Third, there is documentary complexity: bespoke intercreditor arrangements, carefully negotiated equity participation mechanics and tailored governance rights demand legal and structuring expertise which sideline lenders that have not yet had the appetite to build such capabilities in-house or are still finding the right advisers to guide them through this landscape.

The modern capital solutions fund looks materially different from the mezzanine funds of a decade ago. Where earlier iterations relied heavily on payment-in-kind interest and carried private equity risk for debt-like returns, the current cohort focuses on highly structured financing combining contractual cash flows (often fixed-rate) with warrants or preferred equity. Holdco preferred equity and minority recapitalisations have become particularly attractive tools, offering sponsors a mechanism to achieve partial realisations whilst retaining upside exposure. For lenders, the contractual cash flow element addresses concerns around distributions whilst equity kickers provide enhanced upside participation.

The competitive landscape is evolving. A growing number of private credit managers and financial institutions have launched dedicated capital solutions units over recent years, recognising both the volume of deal flow that falls outside traditional direct lending mandates and sponsors' increasing preference for financing partners capable of addressing requirements across the capital structure. The rationale is consistent across these new entrants: (1) existing strategies are not well-suited to capture the opportunity set described in this article; (2) hybrid debt and equity opportunities emerging from sponsor liquidity needs are a key opportunity to be captured; and (3) building a one-stop-shop capability positions managers to deepen relationships and participate in a broader range of transactions. 

For funds or other lenders considering whether to develop these capabilities, the competitive dynamics merit attention: sponsors increasingly expect integrated financing solutions, and managers without this offering may find themselves participating in a narrower sub-set of opportunities. These funds within multi-strategy credit funds sit in the market alongside an established and expanding universe of specialised, independent opportunistic credit funds, catering for all points of the risk/return spectrum.

NAV financing in particular has emerged as a critical component of the capital solutions toolkit. Following the collapses of Silicon Valley Bank and Signature Bank in 2023, private debt funds have moved aggressively into a space historically dominated by banks . Record fundraising in 2025 saw a reported $12.9bn of NAV lending fund closes⁴, including 17Capital's $5.5bn Strategic Lending Fund 6⁵ and Alpinvest's $4bn Strategic Portfolio Finance Fund II⁶. This appetite has continued into 2026 with 17Capital's recent $7.5bn Credit Fund 2⁷ representing the largest NAV loan fundraise to date. These facilities serve a range of strategic purposes: financing follow-on or accretive investments , enabling sponsors to fund final or interim distributions in an environment where traditional exit routes remain challenging, refinancing as set-level debt where a NAV facility offers a more economically efficient solution, and providing breathing room to avoid asset disposals in ill-suited market conditions. Supported by its strategic partnership with global private credit specialist Oaktree⁸, 17Capital has raised $19bn exclusively for NAV finance since it was founded in 2008, reflecting how NAV finance has become firmly established as a standalone asset class within private credit.

Sector rotation: evolving priorities driven by changing geopolitical headwinds and AI-driven disruption

Beyond structural innovation in financing products, opportunistic lenders are also reconsidering where to deploy capital. The sectoral composition of opportunistic and traditional private credit portfolios is undergoing notable recalibration. Two forces are driving this shift: geopolitical imperatives and AI-driven disruption. Both create complexity, and with it, opportunity for lenders able to price the associated risks.

European defence presents a compelling deployment opportunity, though one requiring comfort with reputational complexity and evolving ESG frameworks. A string of recent transactions from 2025 continuing into 2026, signals that deep-pocketed private credit investors are getting behind Europe's defence build-up.⁹ According to KPMG's UK Financial Services Sentiment survey¹⁰, nearly two-thirds of financial services leaders expect the sector to invest more in UK defence in 2026, with private credit well-positioned to fund supply chain expansion and manufacturing capacity where traditional lenders remain cautious. For opportunistic funds comfortable navigating these considerations, this represents fertile ground - and the willingness to engage with a sector many institutional lenders avoid is itself a source of enhanced returns. For more on defence, see our report: Rethinking European defence market dynamics and sector opportunities.

Technology and software, by contrast, present a more nuanced picture and illustrate how complexity can emerge from assets previously considered straightforward. Software companies have been a favoured sector for private credit fund lenders since 2020, with many of the largest-ever unitranche loans deployed to technology businesses¹¹. Yet AI-driven disruption is now casting a shadow over this exposure. The emergence of AI tools capable of performing complex professional tasks that software companies currently monetise has prompted a reassessment of credit risk across the sector and a flurry of press coverage about potential fragilities in private credit portfolios. Software has made up a significant share of sponsor investments over the last few years, second only to commercial services, and market watchers are increasingly cautious about portfolios concentrated in AI-exposed credits.

UBS has warned that in an aggressive disruption scenario, default rates in US private credit could climb to 15%, significantly exceeding the stress projected for leveraged loans and high-yield bonds¹². For opportunistic lenders, this dislocation creates both risk and opportunity. The premium available rewards those able to distinguish between software businesses genuinely threatened by AI disruption and those with competitive and sustainable offerings and strategies: a judgment requiring deep sector expertise and forward-looking analysis rather than backward-looking financial metrics. Lenders positioned to acquire distressed software credits from less discerning competitors, at prices reflecting AI anxiety rather than fundamental impairment, may find attractive risk-adjusted returns.

The distressed opportunity crystallises

The sector dynamics described above - combined with mounting refinancing pressure across the leveraged credit universe - are creating a robust pipeline for distressed and special situations strategies. A new vintage of opportunistic credit funds, having raised more than $100bn over the past two years¹³, stands poised to capitalise on any resulting dislocation.

The fundamentals for distressed investing are strengthening. Whilst high-yield spreads hover near historic tights, significant challenges are emerging beneath this surface level stability. Consumer credit card delinquencies remain elevated, auto loan defaults are accelerating and labour market momentum is decelerating¹⁴. Recent high-profile defaults and fraud allegations have injected caution into the market, with banks tightening underwriting standards and investors demanding greater transparency.

The wave of maturing debt presents a particular opportunity. According to S&P Global Ratings, speculative-grade nonfinancial debt maturities will more than triple to $942.3bn in 2028 from $309.2bn in 2026, with maturities of debt rated 'B-' and below rising even more steeply¹⁵. This creates significant refinancing pressure for leveraged borrowers, particularly those at the lower end of the rating spectrum. Private credit lending to these lower-rated borrowers has exceeded broadly syndicated loan issuance for four consecutive years¹⁶, positioning opportunistic lenders as essential providers of capital to stressed credits.

Liability management exercises continue to proliferate, both in the US market and through evolving restructuring toolkits in Europe (even if credit documentation in Europe generally does not provide the contractual optionality around LME transactions), with private credit facilities increasingly used to refinance or restructure existing obligations. For lenders with genuine workout expertise, these situations represent a distinct opportunity: the ability to structure solutions for borrowers facing maturity walls or covenant pressure, extracting appropriate compensation for the additional risk and structuring effort involved. These transactions often involve complex intercreditor arrangements and creative collateral packages, rewarding lenders with sophisticated structuring capabilities and experience navigating contested situations.

Competition and deployment pressures

The opportunity set must be viewed against the competitive dynamics shaping private credit. With $3tn in AUM forecast by 2028¹⁷ and private funds on track to capture up to 11% of a $41tn addressable credit market¹⁸, capital deployment pressures remain acute.

Competition between private credit funds and the broadly syndicated loan market has intensified, causing downward pressure on spreads and incentivising sponsors to recapitalise performing portfolio companies. Banks, meanwhile, have demonstrated their continued relevance in large-cap financing, with major institutions reasserting themselves after years of private credit dominance. For borrowers, this competition provides attractive optionality; for lenders, it demands disciplined underwriting and selectivity.

Dividend recapitalisations rose in popularity through 2025 as private equity firms sought to return capital to investors in a challenging exit environment¹⁹. For opportunistic lenders, the willingness to provide structured recapitalisation financing to high-quality assets represents a deployment avenue, provided credit fundamentals support the leverage. Here again, opportunistic lenders that can creatively balance sponsor liquidity needs against appropriate creditor protections stand to extract enhanced returns.

Looking ahead: Positioning for opportunity

The themes explored above, capital solutions, sector rotation, distressed opportunities and competitive pressures, point to a market that rewards both creativity and caution, alongside thoughtful strategic positioning. Tight spreads, elevated leverage, weakening consumer fundamentals and geopolitical uncertainty create an environment requiring heightened selectivity. Success will favour managers pairing opportunistic deployment with disciplined underwriting and robust workout capability.

For private credit funds considering their strategic positioning, several themes emerge. Funds that develop capital solutions capabilities may find themselves better placed to maintain and deepen sponsor relationships as borrowers increasingly seek integrated financing partners. The ability to price and structure complex transactions, rather than competing on spread alone, can serve as a meaningful differentiator. Equally, investing in strong operational capabilities to unlock the challenges that deter more traditional funds can be a source of genuine competitive advantage. With the largest private credit managers continuing to scale rapidly, smaller and mid-sized funds may find that specialisation in opportunistic strategies offers a compelling path to relevance in an increasingly competitive market.

The boundaries between investment-grade and high-yield, secured and unsecured, public and private markets continue to blur. Those best positioned to navigate this convergence, deploying capital creatively whilst managing downside risk, stand to benefit from what may prove to be a particularly fertile period for opportunistic credit.