Europe’s weakest corporate borrowers face a tougher refinancing test
Usagevpn.com – A renewed rise in borrowing costs is putting fresh pressure on some of Europe’s most indebted businesses, particularly companies whose loans will need to be refinanced over the next few years. For financially robust groups, a modest increase in interest rates may be absorbed without major disruption. For issuers with low credit ratings and heavy debt loads, however, the same move can sharply narrow their options.
The companies under scrutiny include familiar consumer and business names: Merlin Entertainments, which operates Legoland, Madame Tussauds, Sea Life and the London Eye; tea owner Lipton; residential property manager Heimstaden; telecoms businesses linked to billionaire Patrick Drahi; and Aston Martin, the British luxury carmaker associated with the James Bond films.
Many of these businesses accumulated substantial borrowings when rates were near zero. They now sit within, or close to, the CCC category of the credit-rating spectrum, a level just above default territory. As maturities draw closer, lenders and bond investors are seeking much higher compensation for providing new finance.
Interest-rate cuts have given way to increases
The change in the rate environment has been abrupt. After lowering rates during 2025, the European Central Bank raised its deposit rate in June for the first time in almost three years. Energy prices and inflation had moved higher amid the war involving Iran. A further increase followed in September, bringing the deposit rate to 2.5%.
US monetary policy has also tightened again. In September, the Federal Reserve lifted its policy-rate range to between 3.75% and 4%.
Such changes do not affect every company at the same pace. Businesses generally refinance debt in stages rather than replacing all their borrowing at once. That can delay the impact, but it also means pressure may build gradually as older, cheaper loans expire and are replaced with more expensive funding.
“Higher for longer is a slow squeeze for low-quality credit,” Torsten Slok, chief economist at Apollo Global Management, said in a note published on Friday.
Slok also said rate increases are “working with a lag and working unevenly”. The phrase captures a central concern for lower-rated borrowers: the damage may not be immediate, but it can become increasingly severe when a company must return to the market for refinancing.
Why CCC-rated debt matters
CCC ratings signal that a borrower is highly vulnerable and faces meaningful risks if economic, operating or financial conditions worsen. A company at this level can still meet its obligations, but investors often demand steep yields because the chance of restructuring or default is materially higher than for stronger issuers.
European collateralised loan obligations, known as CLOs, are an important part of this market. CLO managers purchase large pools of corporate loans and finance those portfolios through investors. Their holdings provide a useful indication of where exposure to weaker borrowers is concentrated.
S&P Global Ratings identified the 10 largest CCC-rated borrowers held by European CLOs in a report dated 31 July. At the end of June, these vehicles held €5.3 billion in loans to CCC-rated companies due in 2028, up from €3.5 billion at the end of 2025. Six of the 10 largest borrowers highlighted in the review have debt scheduled to mature in either 2027 or 2028.
That timetable matters because refinancing is not merely a matter of extending a loan. Companies may have to accept higher interest payments, tougher conditions, new equity contributions or a transfer of ownership to creditors. The closer a borrower gets to maturity without a credible funding plan, the weaker its negotiating position can become.
Colisée shows how a restructuring can reset the balance
French elderly-care and nursing-home operator Colisée provides an example of how debt problems can lead to a broader financial overhaul. The business operates facilities across several European countries. In April, a Paris court approved a restructuring plan under which lenders exchanged part of their debt for an ownership stake in the company.
Most of Colisée’s remaining borrowings were extended to 2031. S&P considered the transaction a default, before raising the company’s rating to CCC+ in May. By the time of S&P’s July market snapshot, Colisée’s senior debt was yielding about 5%.
The relatively lower yield reflects the fact that much of the financial pain had already been addressed through the restructuring. The company had obtained additional time, while creditors had accepted a greater role in the ownership structure.
Stow and Merlin illustrate different refinancing pressures
Belgian group Stow makes warehouse storage systems and automated logistics equipment. Its activities include the kind of racking, shelving and automated storage infrastructure used in large distribution centres. European CLOs held €364 million of Stow loans, while S&P rated the company CCC+ with a stable outlook.
Stow’s next debt maturity falls in September 2028. Its senior loans were yielding around 9% in S&P’s July figures, underlining the premium investors require even where a company has more time before its refinancing deadline.
Merlin Entertainments has a nearer-term concern, with debt previously due in 2027. The attractions operator is controlled by KIRKBI, the Lego family’s investment company, together with Blackstone and Canadian pension fund CPP Investments. European CLOs held €583 million of Merlin loans.
In July, Merlin’s senior debt carried yields of roughly 12% to 13%. The market mood later improved. In early September, the company obtained new financing intended to address its 2027 debt obligations. Its 4.5% euro bond due in November 2027 rose from about 95 cents on the euro to around 98 cents, suggesting a yield in the region of 6% to 7%.
The improvement does not remove Merlin’s heavy debt burden, but it reduces the immediate threat of a refinancing crunch. For investors, that distinction is important: a company can remain risky over the longer term while still gaining valuable breathing room.
A prolonged challenge for highly leveraged businesses
US-based Solera, owned by Vista Equity Partners, is another CCC+ rated borrower whose loans are widely held by European funds. Its software is used across the motor sector, including by insurers assessing vehicle damage, repair businesses handling claims and companies using automotive data platforms.
The broader lesson is that high rates can expose vulnerabilities accumulated during the era of exceptionally cheap money. Companies with manageable debt, stable earnings and access to diverse funding sources may be able to adapt. Those with large liabilities and approaching maturities face a far more demanding calculation.
For weaker borrowers, the coming years will be shaped by whether they can refinance before market conditions worsen, secure support from shareholders, sell assets, or negotiate with lenders. The difference between those outcomes may determine whether higher financing costs remain an uncomfortable burden or become a full-scale restructuring crisis.
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