Stress to success: key takeaways from our opportunistic credit seminar

On 23 September 2026, Macfarlanes and PwC co-hosted Stress to Success: Assessing the Opportunistic Credit Playbook, a panel seminar exploring the current state and trajectory of the opportunistic credit market. 

The lively and wide-ranging discussion spanned a variety of themes, from the current financing landscape and deal pricing through to effective deployment and the toolkit for managing underperformance.

The current financing landscape: competition at the top, complexity below

The overall financing market is bifurcated. For conventional direct lending, large amounts of capital are chasing a relatively limited number of high-quality assets, and pricing is exceptionally competitive. Investors are being outbid on senior-secured transactions at margins in the low-to-mid 400-basis-point range, even after receiving investment-committee approval. That competition gives sponsors considerable negotiating leverage over both economics and documentation, and is encouraging more lenders to form clubs: this helps frequency of deployment but can dilute the traditional direct-lending proposition of one decision-maker, rapid execution and flexible terms.

For more complex credits, which in practice covers most, if not all, opportunistic credit investments, the picture is different. Significantly more structural consideration, control and downside protection is required, along with careful valuation work. However, competitive processes are increasingly common, even in complex situations, and any given opportunistic investor is not necessarily the only source of capital. Whereas direct lenders are competing hard on price for high-quality assets, opportunistic investors have to compete on adaptability, certainty, structure and problem-solving.

A structurally large but tactically selective opportunity set

The segment is structurally large but tactically selective. Higher rates, elevated leverage and longer hold periods for private equity, which for the most part have been driven by difficulties in exiting investments made at post-COVID valuation highs, have created a growing book of borrowers seeking out capital solutions. However, the classic "good business, bad balance sheet" situation remains relatively scarce, and in many cases the balance sheet problem is reflective of an operating-business problem.

Macroeconomic and geopolitical headwinds are increasing opportunities across a broader range of sectors, but with specific, sector-driven stress rather than a uniform set of issues across the economy: think "good business, bad sector." The interest rate environment and geopolitical overlays are affecting manufacturers, retailers, logistics businesses and companies with complex international supply chains, while inflation in labour and input costs continues to compress margins and erode profits.

While these factors create the need for more capital, they do not necessarily create more investable opportunities. It will be critical for investors to distinguish temporary capital-structure stress from permanent business impairment.

Locating and capturing the opportunity

Opportunistic credit occupies a broad space beyond senior secured lending against mature, performing businesses. It spans every part of the capital structure, from non-standard sectors and assets through to special situations and distressed investing, and is reflected in a wide spectrum of instruments, including senior secured and mezzanine lending, holdco PIK, preferred equity, basket financing and bridge finance.

The opportunity set is drawing managers to specialise in particular sectors, products and investment lifecycle stages in which they have experience and can price risks effectively. Capital solutions can isolate specific exposures and unlock capital for assets that were previously under-leveraged. For example, through structurally senior preferred instruments at OpCo or asset level to ring-fence exposures.

Against this backdrop of specialisation and breadth, it is key to build the right internal teams and frameworks, and to partner with advisers who have the necessary experience across the capital structure and a variety of instruments in play to help tailor the solution to the situation. Sponsors and lenders share an interest in business success and value recovery, and economic alignment is increasingly reinforced through equity kickers, co-investments and hybrid investment strategies.

Downside protection starts at origination

Benchmarking in this market is difficult: what looked expensive twelve months ago may now look like a missed chance. Doing the work to price competitively or to obtain approval on a more challenging asset is time-consuming and expensive, making it even more important to lock in follow-on investment opportunities, for example, through strong ROFR rights, long (or no) sunset on MFN protections and robust call protection or fixed minimum MOICs.

At the same time, underwriting and structuring discipline is critical. It is important to look beyond the headline coupon, pricing in downside risk and negotiating optionality and protections that ensure returns properly reflect position in the capital structure, collateral coverage, execution risk and downside scenarios. The right structuring and focus on documentary terms and downside situation planning before execution can mitigate the risk that the investment is diluted, layered or that an enforcement is frustrated. The risks in this space cannot be priced effectively without clearly understanding returns in downside cases and how effectively and timely enforcement or control strategies can be implemented.

The restructuring toolkit has expanded but deploy it early

Credit investors now have a broader toolkit of downside protections than ever before: consensual amendments, balance sheet restructurings, secondary sales and transfers, and control or enforcement strategies, paired with balance sheet restructuring tools including Restructuring Plans. However, these tools are most effective when deployed early while the company has runway and options as the best workout is the one that you never have to do.

The increasing willingness of private credit investors to take the keys of a borrower, whether on a consensual or non-consensual basis, also reflects a shift in LP expectations: whereas previously it was important to demonstrate a performing portfolio, defaults are now more generally accepted (and expected), provided that they are worked out rigorously and effectively. Restructuring Plans can prove valuable to credit investors post-take control as well to cram down liabilities or leave them behind to improve balance sheet health.

Summary

The overarching message from our panel was clear: the opportunities available across the opportunistic credit market are vast and growing, but selectivity, rigorous underwriting and robust legal structuring from the outset are the foundations of success. Capital is flowing to investors who can price, structure and manage risk most effectively, and those who combine sector expertise with underwriting, documentary and structuring discipline will be best positioned to capture it.

Thank you to our panellists: Adam Caines, Macfarlanes, Nick O'Grady, Macfarlanes and Sam Tao, PwC, moderated by Paul Keddie, Macfarlanes.