Resilience, refinancing and risk – the trends shaping the debt market        

Debt Advisory Partner Tom Cox explores the latest themes impacting debt funding activity

After a prolonged period of economic uncertainty, the UK debt market continues to demonstrate notable resilience. Liquidity remains strong across the mid-market and competition amongst lenders is still supporting favourable terms for high-quality borrowers. We are now in what could be described as a late-cycle phase, where capital remains widely available, but the conditions attached to it are becoming increasingly nuanced.

A combination of refinancing pressure, geopolitical uncertainty and evolving technology risks  are reshaping lender priorities, with credit providers becoming far more selective around where they deploy capital and how they assess long-term resilience. As a result, the gap between stronger and weaker credits is continuing to widen.

For lenders, the focus has shifted firmly towards resilience and long-term defensibility. Businesses able to demonstrate strong cash generation, recurring or re-occurring revenues and operational stability continue to attract significant appetite, while borrowers perceived as more exposed to economic volatility are facing tougher scrutiny and a wider divergence in pricing.

The result is a market operating at two distinct speeds. High-quality businesses continue to access attractive funding conditions, while borrowers with weaker fundamentals are finding liquidity considerably harder, and more expensive, to secure.

Refinancing is driving market volume

This polarisation is becoming increasingly visible as refinancing activity continues to dominate market volume. A significant number of facilities raised between 2020 and 2022 are now approaching maturity, bringing many businesses back to market at a time when trading conditions and growth expectations look materially different to those seen during the post-Covid lending environment. Buyouts are still happening, but there are fewer high-quality opportunities in the market and where they do come forward, they continue to trade with very attractive terms.

As a result, lenders are taking a more disciplined approach to leverage, cash flow visibility and downside protection. Given the maturity horizon for many borrowers amend-and-extend activity has risen, alongside more restructuring discussions, particularly where businesses have not delivered against original performance expectations.

At the same time, the volume of capital still seeking yield is maintaining intense competition for stronger assets. Private credit lenders, in particular, remain keen to put money to work, helping to sustain competitive pricing and flexible structures for businesses viewed as lower risk or offering a stable platform for further capital deployment.

Defensive sectors remain favourable

That same focus on resilience is increasingly shaping sector appetite.

Defensive industries with recurring revenues and long-term structural demand continue to attract the strongest levels of lender interest. Healthcare and infrastructure services, technical inspection, testing and certification businesses, facilities management and professional services all remain highly active areas within the market, reflecting lenders’ preference for predictable performance and stable cash generation.

Defence-related businesses have also moved sharply up the appetite curve following heightened geopolitical tensions and increased global defence spending. However, while appetite has strengthened significantly, lenders remain cautious around sustainability and are increasingly focused on distinguishing between long-term structural growth and shorter-term market momentum.

AI and geopolitical uncertainty are reshaping credit decisions

Alongside geopolitical considerations, AI is also becoming a more significant factor within credit processes, particularly across software and technology-focused businesses.

Rather than dampening appetite for the sector altogether, AI is driving deeper diligence around the durability of revenues, customer retention and how embedded products remain within customers’ day-to-day operations. Businesses that have proactively integrated AI into their operating models are generally being viewed positively, while those perceived as more vulnerable to disruption are facing more detailed scrutiny.

This broader shift towards downside protection is also influencing how lenders assess sponsors and shareholders. Increasingly, there is greater focus on sponsor track record and access to liquidity, alongside the extent to which investors are actively involved in supporting portfolio companies operationally, particularly in more challenging situations.

Meanwhile, geopolitical uncertainty continues to weigh on sentiment across the market. While the full economic impact of recent Middle Eastern conflict has yet to materially filter through into UK and European business performance, lenders are increasingly assessing supply chain exposure and operational resilience more closely as part of underwriting processes. That lag effect is likely to influence activity levels over the summer, with many borrowers and lenders expected to take stock before committing to new deals. A more familiar Q4 rush could follow once the impact becomes clearer and confidence returns.

Preparation and clarity are becoming key differentiators

Against this backdrop, preparation and speed of execution are becoming increasingly important differentiators for borrowers. Our recent Decision Economy report found that 70% of mid-market businesses experience frequent delays in major decisions, with firms taking an average of 4.7 weeks to reach significant decisions. In an increasingly selective funding environment, delays around refinancing preparation or stakeholder alignment can materially affect outcomes. While uncertainty is expected to continue influencing activity levels over the coming months, the overall outlook for debt funding remains positive for well-positioned businesses. Capital remains widely available and lender competition remains strong, but the businesses best placed to secure attractive terms are increasingly those able to demonstrate clear resilience alongside a well-prepared funding story.