Key Takeaways

  • Borrowers and private credit lenders are pushing debt maturities out to 2028 and 2030 to bypass volatility around the US presidential election.
  • Between 85% and 90% of troubled corporate credits are resolving out of court through liability management exercises and payment-in-kind arrangements rather than Chapter 11.
  • Limited partner distribution deficits are breaking lender consensus, as individual credit funds refuse extensions because they need cash returns to raise their next vehicles.
  • Artificial intelligence tools like Anthropic's Claude analyze credit agreements and borrower flexibility in five minutes, replacing legal tasks that previously took associates up to 36 hours.

The Election Hedge and Out-of-Court Can Kicking

Corporate balance sheets are dodging immediate maturity tests through aggressive extension strategies. In Houlihan Lokey's restructuring practice, William Tuck Hardie sees sponsors and lenders teaming up to kick maturities deep into the future. “We're moving balance sheets now that are due in 2028 to 2030,” (play from 0:22) Hardie explains. “There's a lot of people who want to get past the next presidential election in the US.” (play from 0:25)

This delay explains why default statistics look artificially benign. Rather than triggering formal bankruptcy filings, between 85% and 90% of distressed situations get resolved behind closed doors. Private credit lenders use payment-in-kind interest, covenant holidays, and liability management exercises to sidestep public impairment. Neither the sponsor nor the direct lender wants to mark an asset down when macro conditions are choppy. But this deferral creates a massive concentration of paper maturing between 2028 and 2030. Hardie cautions that the market will not absorb all of it cleanly: “I think you're going to see more of those balance sheets come due than you did in 23 24. But certainly not all of them. A big chunk of them will continue to get kicked.” (play from 50:12)

Why LP Capital Starvation Breaks Lender Unity

Amend-and-extend transactions require lender alignment, and that alignment is fracturing from the outside. The friction is not coming from credit committees assessing underlying enterprise cash flow. It is coming from the institutional investors backing the debt funds.

Limited partners face an extended liquidity drought. With private equity distributions at historic lows, LPs are withholding commitments to new direct lending funds until managers return old principal. “The limited partners, the investors in these vehicles are asking for capital back,” (play from 23:37) Hardie says. “They're not committing to the next fund until they get a certain quantum of their existing capital returned on account of their existing fund investments. And that's actually slowing down the amend and pretend or amend and extend phenomena.” (play from 23:45)

This dynamic wrecks the consensus needed for out-of-court workouts. Hardie points to a recent assignment for a sponsor-backed borrower seeking an extension from ten credit providers: “We could get nine out of the 10 of them to agree, but one of them just simply said, 'I can't do it. My investors will string me up by my thumbs if I agree to an extension on this credit.'” (play from 24:15) When a single fund manager needs liquid distributions to salvage an active fundraising cycle, the entire amend-and-extend strategy falls apart.

At the same time, information asymmetry between sponsors and creditors is shrinking rapidly. Restructuring advisors increasingly turn to large language models to dissect complex loan documents in minutes rather than days. As Hardie notes, “Claude has replaced a lot of what we used to hire junior resources to do because I can now put credit docs into Claude and it'll tell me in five minutes what the borrower has in the way of flexibility, whereas it would take either one of my associates or some law firm's associates a day or day and a half to do it.” (play from 48:45) Lenders can spot aggressive primed debt or asset drop-down loopholes almost immediately.

Why It Matters

The private credit market has treated liquidity distress as an exercise in duration management, assuming time cures balance sheet flaws. That thesis works only when fund managers hold captive capital. As LP distribution shortfalls starve fundraising pipelines, single holdout lenders will force recapitalizations, debt-for-equity swaps, and distressed asset sales long before loans reach their 2028 maturities.