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Stress and distress in the European mid-market: where we are today

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by BlueBay Fixed Income Team, D.Farley, A.Phillips Oct 17, 2024

With an ever-changing macro backdrop, we look at the outlook for stress and defaults in the European mid-market space, and what this means for investors.

Key points:

  • Mid-market borrowers with challenged business models are unable to access public markets and are having to turn to alternative sources to finance their capital needs.

  • The rapid expansion of borrowing over a period of benign economic stress has led to a large cohort of borrowers who are now facing significant pressure.

  • An increasing number of problematic economic conditions due to lower growth, higher inflation and higher rates are likely to lead to even more stress and distress for European issuers, particularly those in the mid-market.

  • Germany – the ‘sick man’ of Europe – is of particular importance. With well-funded, large corporations feeling the pain of the economic climate, the pain in this area is likely to be even higher.

  • Given the unwind of leverage required as a result of quantitative easing post the GFC, there is a considerable amount of opportunity for Special Situation investors in the European mid-market.
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