Debt Workouts in Europe to Peak in 2026, EY-Parthenon Poll Shows

A recent EY-Parthenon survey reveals that European debt restructuring activity is expected to intensify over the next six months, driven by slowing sales, a sluggish economy, and rising energy and materials costs. Restructuring professionals now anticipate a peak in corporate distress in the first half of 2026, a significant shift from earlier projections of a peak before the end of 2025, indicating a more prolonged period of corporate challenges.

Analysis

The EY-Parthenon survey forecasts a significant increase in European corporate debt restructuring activity, expected to intensify over the next six months. This surge is primarily attributed to persistent macroeconomic headwinds, including slowing sales, a sluggish regional economy, and escalating energy and materials costs. The overall sentiment is moderately negative, reflecting a pessimistic outlook for corporate fundamentals.

A key finding is the revised timeline for the peak in corporate distress, now projected for the first half of 2026. This represents a meaningful shift from the March report, which anticipated a peak before the end of 2025, indicating a more prolonged period of financial strain for European businesses. Almost half of restructuring professionals surveyed now align with this later peak.

This extended timeline for peak restructuring activity implies that the current challenging operating environment is not a short-term phenomenon. The confluence of these factors points to sustained pressure on company fundamentals and credit markets across Europe, particularly impacting sectors sensitive to energy and raw material price fluctuations.

Key Decisions for Investors

• Investors should review European credit exposures, particularly in sectors vulnerable to high energy and material costs, for potential downgrades or defaults.
• Consider adjusting portfolio allocations to account for a prolonged period of corporate distress, potentially favoring companies with strong balance sheets and pricing power.
• Monitor leading indicators of economic activity and corporate earnings in Europe, as the H1 2026 peak suggests a sustained challenging environment.