Corporate distress in Europe hits highest since August 2020

Businesses in the region are struggling with rampant inflation.
Skyscraper office buildings on the skyline in the Canary Wharf business, shopping and financial district in London. Image: Jason Alden/Bloomberg

Corporate distress in Europe’s biggest markets is near a two-year high as inflation and higher interest rates squeeze indebted firms.

Companies in Germany, the UK, France, Spain and Italy are the most distressed since August 2020, according to the Weil European Distress Index. The study aggregates data from more than 3,750 listed European firms.

“If this upward trajectory continues, we would expect to see increased pressure on liquidity and further tightening across the credit markets with some businesses struggling to access finance and ultimately facing defaults,” said Neil Devaney, a partner and co-head of Weil, Gotshal & Manges’s London restructuring practice. “The economic outlook has become significantly more challenging.”

Businesses in Europe are struggling with rampant inflation, with firms forced to pay more for everything from fuel to labor. The resulting tightening of monetary policy by the Bank of England and the European Central Bank is also making it more expensive for companies to refinance.

Of the five European countries studied by Weil, Germany was the most distressed, followed closely by the UK, with companies from the retail and consumer goods sector leading the decline. To assess distress, Weil looked at metrics including firms’ ability to access liquidity, changes to valuations and overall market conditions.

© 2022 Bloomberg

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