Written by the Hermes Management investment team.
When a European bank pulls back from a jurisdiction, it does not do so borrower by borrower. It closes the mandate. Companies with contracted revenue, hard collateral and clean payment histories lose access alongside genuinely distressed ones, purely because of the flag on their registration document.
That dislocation is the entire case for private credit in these markets. Senior secured lending against inspected assets, mezzanine tranches that let a founder keep control through an acquisition, royalty structures that fund growth without forcing an equity round at the wrong valuation – each solves a problem a retreating bank has created rather than diagnosed.
The discipline is in the documentation, not the yield. Covenants that get tested monthly rather than annually. Security that can be enforced in the jurisdiction where the asset physically sits. Amortisation profiles that match how the borrower actually earns money, not how a credit model prefers to see it.
Done properly, distressed and special-situations exposure is not opportunism. It is the recapitalisation of businesses that were solvent all along.