2025 Market Review: Credit, Capital and Change

2025 was a year of refinement in credit markets. From the vantage point of Akin’s financial restructuring and capital solutions teams, liability management transactions continued to evolve, hybrid capital became a strategic liquidity tool, private credit stress proved selective rather than systemic, and courts applied greater scrutiny to process and value allocation—while leaving the core toolkit intact.

As maturity walls approach and capital structures built in a zero-rate environment confront rate normalization and sector disruption, the defining theme is not contraction but institutionalization: sharper documentation, more disciplined creditor coordination, and increasingly sophisticated capital solutions now define the market.

Explore the 10 themes that refined the markets:

• LMEs & Special Situations
• In-Court Restructurings
• Restructuring & Credit-Related Litigation
• Private Credit Restructurings
• Front-End Private Credit
• Hybrid Capital
• Cross-Border
• Private Equity Special Situations & Control-Oriented Distress
• Asset-Backed Finance
• Fund Liquidity Solutions & NAV Lending

LMEs & Special Situations

• Market Reset: Exchange structures have become highly dependent on specific contractual provisions in light of litigation developments.
• LME Activity: Overall, LME activity remains steady, even as the pace of traditional loan-exchange transactions has moderated. Deal-away transactions remain less common than transactions with lender consent, but borrowers have shown increased willingness to credibly threaten and, in several cases, execute deal-away structures as part of broader liability management negotiations.
• Evolved LME Toolkit: Tools and technology include extend-and-exchange deals, inside-out structures, proliferation of side agreements, hybrid debt/equity instruments, holdco PIK structures, and backstopped rights offerings.
• Coops as Core Infrastructure: 2025 saw larger, earlier coops facilitate LMEs, set participation caps, establish tier economics, and embed guardrails for transaction terms and litigation thresholds.
• LME Litigation: 2025 saw various LME litigation rulings (some permissive and some restrictive), along with several settlements, that may influence LME activity.  Additionally, several recently filed complaints will remain an area of focus and could impact future LME activity, depending on their outcomes.  
• Maturity Wall: Increased focus on maturity extensions in many leveraged capital structures.

In-Court Restructurings

• Increased Filing Activity: Filing activity remained elevated, driven by higher-for-longer rates, refinancing walls, and failed out-of-court fixes.
• Rise of “Chapter 22s”: Failed LMEs led to comprehensive restructurings, with courts revisiting prior priming and insider-backed deals. Creditor groups formed to challenge DIP roll-ups and plan classifications.
• Aggressive DIP Financing & Intercreditor Battles: 2025 DIPs featured roll-ups, PIK toggles, and milestone-heavy terms, often from prior LME participants and/or small groups of large lenders. ConvergeOne-style concerns are increasingly raised not just in connection with plan discussions, but also in DIP and roll-up negotiations.
• Plan Tactics Under Scrutiny: Sponsors pushed prepack plans and toggle structures, but courts cracked down on gerrymandered voting classes, insider benefits, and third-party releases. A recurring theme is whether restructuring economics and participation rights were appropriately offered or market-tested once the matter is in court.
• 363 Sales & Loan-to-Own Strategies: Many cases ended in 363 sales, with creditor groups using credit bids and DIP-to-exit toggles to secure control. Post-emergence structures leaned on private-credit style financings and creditor-led governance.

Restructuring & Credit-Related Litigation

• Post-Serta Litigation Surge: The Fifth Circuit’s late-2024 reversal triggered a wave of lawsuits challenging 2022–2024 uptiers and LMEs as parties tested ‘open market’ language and process integrity—especially where documents tracked Serta-style pro rata sharing. Courts leaned on strict contract language, rejected implied covenant theories, and scrutinized whether processes were genuine or pre-wired.
• Failed LMEs Colliding with Bankruptcy: ConvergeOne became an early test case “chapter 22”, with courts probing prior priming deals, engineered lender status, and sponsor influence—setting precedent for discovery into LME fairness in bankruptcy. A key battleground is whether new-money/backstop access and process are treated as part of creditor claim treatment—especially once the dispute lands in court.
• Coop Governance: Selecta highlighted how majority creditors can utilize coops to strip covenants and upgrade their position, sparking minority lawsuits over vote-rigging and sacred rights.
• Litigation as Leverage for Financing Access: Anthology illustrated a new trend—creditors suing not to unwind LMEs, but to force inclusion in new-money deals. Result: broader disclosures and participation rights, making litigation a strategic entry tool.
• Intercreditor & Priority Conflicts: Disputes increasingly focused on standing, transparency, and priority in synthetic structures (first-out/last-out, double-dips, factoring/structural seniority).
• Judicial Pushback: Courts scrutinized backstop economics, roll-ups, and process in certain rulings—especially where unequal access to participation could be framed as unequal treatment.

Private Credit Restructurings

• Restructuring Considerations at Initial Loan: New deals have increased focus on, and negotiation of, key enforcement rights, in particular enforcement rights that can be used as restructuring tools out-of-court such as proxy rights and notice periods.  How hard to push can be a differentiator in winning front-end deals.
• Proactive Monitoring & Early Engagement: Private credit lenders intervened at the first signs of stress—missed budgets, liquidity gaps, delayed audits—leveraging enhanced reporting rights and demanding real-time liquidity forecasts and stress tests. Growing scrutiny of PIK amendments and valuation/rating transparency is a live theme.
• Restructuring Toolkit Evolution: Amend-and-extend strategies paired with liquidity bridges, equity kick-ins, and re-underwritten covenants became standard, often with embedded toggles for equitization if performance deteriorated.
• Governance & Operational Oversight: Lenders appointed board observers, independent directors, CROs, and turnaround consultants, alongside performance milestones and consent rights on key decisions.
• Transition to In-Court Solutions: Bankruptcy remained a last resort, used primarily when liquidity gaps were unbridgeable or sponsors refused to cooperate. Private credit-driven chapter 11s were faster and often prepackaged, with lenders prepared to take equity ownership.
• Private Credit vs. BSL: Fewer parties and cleaner documentation enabled speed and predictability, while negotiations emphasized operational rigor and sponsor cooperation over opportunistic tactics common in BSL restructurings.  Concern around LMEs has been historically less common in private credit but has become more prevalent in larger/club deals as dynamics converge with BSL.

Front-End Private Credit

• Selective Deployment & Quality Bias: Deal flow concentrated in mission-critical services, asset-light industrial tech, healthcare, and stable software. Lenders demanded deeper diligence—cohort analysis, churn curves, and ROI validation—over sponsor-driven models.
• Documentation Tightening with LME Guardrails: New deals embedded LME protections (non pro rata  blocks, sacred-rights expansion) and early-warning triggers, while sponsors retained flexibility on add-ons, voting/concentration provisions and EBITDA definitions under competitive pressure.
• Non-Sponsor Direct Lending Goes Mainstream: Founder-owned and corporate borrowers drove growth in bespoke structures—delayed-draw term loans, hybrid overlays, and asset-based top-ups—paired with tighter governance and pricing power for lenders.
• Sector Hotspots: Healthcare platforms sought roll-up and working capital; digital infrastructure demand surged (data centers, fiber, AI compute); tech deals focused on profitability and low churn, often using performance-based tranching.
• Hybrid in Direct Lending: PIK toggles, warrants, and revenue-participation mechanics blurred lines between debt and equity, positioning private credit as both front-end lender and back-end capital solutions provider.
• Competitive Dynamics & Underwriting Discipline: Large platforms dominated via speed and integrated capital stacks (term loans + hybrid + NAV), while underwriting assumed “higher-for-longer” rates, liquidity stress cases, and pre-negotiated rescue pathways.

Hybrid Capital

• Hybrid as the Go-To Liquidity Solution:  PIK rescue notes surged to bridge 2026–2028 maturities, often deployed in a “Hybrid First, LME Second” sequence to stabilize liquidity before broader liability management and to avoid triggering a contested process.
• Middle Path Between Debt & Equity: Hybrid refinancings replaced traditional term loans with structured preferred or PIK instruments, enabling “deleveraging lite” optics and covenant relief while avoiding full sponsor dilution.
• Hybrid for Offense, Not Just Defense: Sponsors used hybrid capital for tuck-in acquisitions, minority recaps, and growth initiatives—preserving valuations and avoiding down-rounds in high-growth sectors.
• Structural Innovations: 2025 hybrids featured multi-mode PIK toggles, milestone-based redemption triggers, KPI-linked conversion resets, and governance hooks (board observers, veto rights) alongside equity-like upside (warrants, CVRs). 
• Investor Universe Expansion: Dedicated hybrid desks at direct lenders, multi-strategy funds, sponsor balance sheet capital, and special sits investors drove competitive pricing and scaled deployment.
• Why Hybrid Dominated: High rates, depressed equity valuations, and sponsor aversion to dilution made hybrid the “pressure release valve”—providing equity-like returns with creditor protections and helping companies avoid chapter 11.

Cross-Border

• Multi-Jurisdictional Restructuring Tools: UK Restructuring Plans (RPs) remained a key tool for implementing semi-consensual deals, but an increasingly litigious backdrop may encourage sponsors to look for out-of-court solutions. European processes—WHOA (Netherlands), StaRUG (Germany) and accelerated safeguard (France)—gained traction for pre-insolvency fixes and rapid balance-sheet resets. Dual and sometimes triple-track processes were an increasing feature, proving the ability to reach across borders to ensure robust implementation.
• European LMEs: LMEs moved out of the periphery and more into the mainstream with a flurry of year-end activity, fueled by weak covenant terms and challenging macro environments. “Non pro rata” distressed disposals made their debut.
• Cross-Border Capital Solutions: Hybrid instruments (pref equity, structured PIK), super-senior rescue tranches, and PIK layers were a frequent feature of stressed and distressed situations.
• Coop Cooling: While remaining a useful tool used by creditor groups to counter actual or perceived coercive behavior by sponsors, the use of coops remained common, though concerns about liquidity and litigation risk influenced how they were used.
• U.S. Investor Adjustments: Sacred rights diligence, pricing premiums for covenant risk and contractual anti-LME protections became hot topics. Jurisdictional risk is now a core underwriting factor for U.S. funds buying European credits.

Private Equity Special Situations & Control-Oriented Distress

• Loan-to-Own Becomes Strategic: Creditors underwrote amendments and covenant waivers with control in mind—embedding governance rights, CRO triggers and pre-negotiated equitization toggles into amend-and-extend deals.
• Credit Bids & Pre-Wired Takeovers: Distressed M&A increasingly featured lenders using DIP financing, roll-ups and stalking-horse bids to secure ownership with minimal incremental capital. New deals sourced by buying out existing lenders who did not want to take the keys.
• Sponsors as Special Situations Investors: Sponsors reentered distress selectively, favoring structured seniority (pref equity, PIK) and carve-out acquisitions over full platform rescues, often using GP-led continuation structures.
• Control-Oriented Amend-and-Extend: Extensions came with governance concessions, milestone-driven conditions, and upside-sharing mechanisms (warrants, preferred equity), while equity cures expanded beyond cash to IP transfers and minority stake sales.
• Distressed M&A & Capital Stack Innovation: Both lenders and sponsors competed for assets via hybrid financing (PIK toggles, earnouts, DDTLs), club deals and carve-outs.
• Sponsor–Lender Realignment: Co-investment structures, standstill agreements, and shared upside designs proliferated, but lenders demanded full transparency on sponsor economics and related-party arrangements before granting runway.

Asset-Backed Finance

• ABF as a Core Liquidity Tool: Companies leaned on receivables and inventory-backed facilities as high rates made traditional refinancing prohibitive. RCFs were recut into borrowing-base ABLs with tighter eligibility and frequent field exams.
• Sector-Specific Growth: Healthcare A/R financing surged due to reimbursement delays; fleet and equipment financings expanded; sale-leasebacks provided liquidity without new leverage—often paired with hybrid capital for complex turnarounds.
• Collateral Integrity Risks Exposed: Cases like First Brands and Tricolor highlighted vulnerabilities—double pledging, opaque reporting, and volatile collateral pools—prompting lenders to tighten controls with weekly borrowing-base certificates, enhanced audits, and anti-leakage provisions.
• Digital Infrastructure & AI Assets: ABF evolved to finance data centers, GPU clusters, and AI compute hardware via structured leases and SPV-level loans, creating a new asset class and attracting specialty funds and multi-strategy platforms.
• Fintech & Consumer Platforms: Warehouse and forward-flow facilities grew selectively across BNPL and SMB marketplaces, supported by partial ABS market reopening and stricter data transparency requirements.

Fund Liquidity Solutions & NAV Lending

• Liquidity Pressure Across PE Portfolios: Weak exit markets, slower fundraising cycles and increasing demand by LPs for periodic liquidity forced sponsors to prioritize internal liquidity management, using NAV loans, hybrid fund facilities and GP-level financing to bridge capital needs and support underperforming assets.
• NAV Lending Scales Up: NAV facilities became mainstream, evolving with tighter covenants, DDTLs, and heightened asset-level diligence. Syndicated NAV deals emerged for larger sponsors, making NAV credit a core liquidity tool rather than a niche solution.
• Hybrid Fund Facilities Gain Traction: Combining capital-call support with NAV collateral, hybrids offered flexible leverage for mid-life funds, enabling more frequent distributions, follow-ons and deal pacing while requiring enhanced transparency and concentration controls.
• GP-Level Financing Normalized: GP loans funded co-invest obligations, often paired with NAV or hybrid features to maintain alignment and avoid dilution across vintages.
• Credit Secondaries Mature: Dedicated funds purchased private credit positions—including unitranches, NAV loans and LME exposures—providing sponsors with liquidity and portfolio rebalancing options.
• Integrated Liquidity Stack: Sponsors increasingly combined NAV loans, hybrid facilities, continuation vehicles and synthetic secondaries into modular solutions—making fund-level financing a strategic necessity amid high rates, delayed exits and LP pacing demands.

Contact Us

For more information, please contact any member of Akin’s Financial Restructuring or Capital Solutions teams.