Debt-for-Equity Swaps in Europe

Explore the rising trend of debt-for-equity swaps in Europe as private equity firms hand over company keys amidst higher interest rates and the ongoing effects of the pandemic.

Discover the rising trend of debt-for-equity swaps in Europe as private equity firms hand over company keys amidst higher interest rates and the ongoing effects of the pandemic. Learn how default rates for European junk debt are projected to rise to 3.8% by September next year.

Private equity firms in Europe are increasingly turning to debt-for-equity swaps as a way to offload struggling companies. With higher interest rates and the ongoing effects of the pandemic, sponsors are becoming more selective in their support of businesses. In 2023, there were 21 companies in Europe that underwent debt-for-equity swaps, making it the second-worst year for distressed exchanges since 2009. This trend is expected to continue, with default rates for European junk debt projected to rise to 3.8% by September next year.

BC Partners, Carlyle, and KKR's special situations arm were among the private equity firms that engaged in the highest number of debt-for-equity swaps in the region. Companies such as Praesidiad, Hilding Anders, Dessange International, Aqualung International, Unzer, and Dobbies Garden Center were among those handed over to private lenders in these transactions. While debt-for-equity swaps can present opportunities for creditors, there is also the risk that the company may never recover, as seen in the case of call centre operator Atento.

The increase in debt-for-equity swaps has also affected family-owned businesses, with some facing legal battles before lenders could take control. However, in many cases, a deal is reached where the private equity firm retains some equity or other notional value instead of zero.

The rise in debt-for-equity swaps in Europe reflects the challenges faced by businesses in the current economic climate. Private equity firms are reevaluating their support for struggling companies, and creditors are navigating the potential risks and opportunities presented by these transactions.