Our Legal Insights Blog

Last week, I attended Bloomberg’s fourth annual CLO Summit in London. The conversation was more measured than the headlines have been suggesting. 2025 was a record year for new issuance, resets, and refinancings. Investor demand was strong across the capital stack, and CLOs continued to function as the largest buyer of leveraged loans in Europe. The structure held up, even with geopolitical noise running in the background.

Something is shifting in the markets. Inflation expectations hit 5.2% last week in the US, the highest since March 2023. Three weeks ago the bond market was pricing in rate cuts. Now the probability of a Fed rate hike by year end (24.6%) is more than three times the probability of a cut (7.5%). Fed fund futures have pushed the next expected cut all the way out to October 2027. That’s the picture in America, but if you think Europe is insulated, think again.

Last week, I hosted a breakfast roundtable in Paris with a group of European credit professionals. The room included CLO managers, high yield portfolio managers, direct lenders, distressed investors and stressed credit analysts. What they had in common was that they are all grappling with documentation risk in one way or another.

During our roundtable discussion in Los Angeles, our guests – representing investors, advisors, and covenant specialists – discussed how distressed investing has changed, particularly in the era of liability management exercises (LMEs), co-op agreements, and increasingly flexible documentation. The conversation was so in-depth we were only able to take photos after it was already over!

Over breakfast and coffee, a room full of lenders, investors, and credit professionals gathered to talk about something that has quietly reshaped European leveraged finance over the last decade: documentation risk – and the implications of borrowers actually using the flexibility they’ve negotiated. What followed was not a technical training session or a legal lecture. It was a candid, experience‑driven conversation about how we got here, what has changed in practice, and what lenders can realistically do next.

Asset Sale covenants are viewed as protective: if a borrower sells assets, lenders expect either reinvestment in the business or debt repayment. In theory, these provisions preserve credit quality by preventing value leakage. In practice, however, modern drafting frequently gives borrowers far more flexibility than investors appreciate – especially in stressed situations.

When considering what to write for my 2026 outlook – what helpful information I could impart – I realized that LMEs, litigation and market factors will all be covered in our Knowledge Series events for January with our guests Shan Qureshi and Jeanine Arnold, and much better than I could do alone.

2025 marked a pivotal shift in leveraged finance, with borrowers aggressively testing liability management exercises (LMEs), courts issuing landmark rulings on uptier transactions, and lenders mainstreaming protective "blockers" in documentation. The year finished with a bang as Altice USA followed Selecta’s lead in taking legal action against cooperation agreements – setting up 2026 to be a transformative year for the leveraged finance market.