Business Restructuring: What You Need to Know in 2025

All eyes are currently on UK water utility companies, including Thames Water, a hugely complex distressed situation which is unlikely to be fully resolved for some time. Not far behind are other regulated water utilities, and Thames Water is likely to set a precedent for future restructurings in this sector. Whilst a special administration regime (SAR) is available for regulated water companies, for now the focus is on stakeholders finding a market-driven solution, using the English restructuring plan as a tool for implementation.

The uptick in distress in commercial real estate will continue, often driven by compressed valuations and liquidity constraints.  

We are seeing more liability management transactions either executed or contemplated in the European market. Under the right circumstances, LME can be an appropriate restructuring/refinancing technique. However, we do not expect such transactions to be as prevalent as in the US market. We anticipate continued caution from sponsors in relation to such deals, and hesitation from family-owned businesses—more prevalent across Europe—in engaging in such deals. In addition, the patchwork of different jurisdictions across Europe means directors’ duties considerations can be complex, and English governing law and European-style intercreditor arrangements can make some of the LME techniques very challenging to execute in the European context.

Until recently seen as a US market-only phenomenon, 2024 has seen a flurry of creditor groups entering into cooperation agreements as a defensive measure in negotiations relating to large, complex capital structures. Despite the surge in popularity, they remain novel in the European context. We expect that in 2025 we will see this new tool continue to mature, and potentially be tested and challenged.

We have seen a number of consensual enforcement transactions in recent years and anticipate that this will remain an attractive option in certain circumstances. When this occurs, sponsors may decide to consensually hand the keys to their portfolio company to lenders, in return for full releases of liability and potentially a minority stake in the equity (known as an ‘equity tip’). This trend is the counterbalance to the increase in liability management scenarios, with sponsors prioritising preserving their relationships with other stakeholders over fighting to retain control by leveraging documentary flexibility when a portfolio company is in deep distress.