Refinancing in 2026: a two-speed market, and what lenders look at first

Corvus Management · As at October 2026

Many mid-market companies put their current facilities in place between 2020 and 2022, when money was cheap and covenants generous. The ECB deposit rate stood at or below zero from 2016 to mid-2022; it is now 2.50%, after two increases in 2026.² That level is not high by historical standards, but the step change from the vintage of most facilities is significant. The same business, with the same earnings, does not necessarily support the same debt. The question has shifted from “who offers the lowest margin” to “what structure can the business sustainably carry”.

The market: tighter banks, selective private credit

In the ECB's October 2026 bank lending survey, a net 9% of euro area banks reported tighter credit standards for loans to firms in the third quarter, citing higher perceived risks, and banks expect a further tightening in the fourth quarter.¹ Private credit fills part of the gap: Europe now accounts for close to 30% of global private credit assets, and asset-based and hybrid structures are increasingly available to mid-market companies and family businesses.³ Across both segments, however, lenders favour resilient, cash-generative businesses. Well-prepared borrowers find competitive terms. Weaker or late ones face higher costs and closer scrutiny.

1. Cash flow before leverage

Higher rates mean that interest consumes a larger share of operating cash flow. Lenders therefore focus first on interest cover and free cash flow after capital expenditure, tax and working capital, rather than on a leverage multiple alone. A credible, well-documented cash flow forecast with sensitivities is now the starting point of any serious discussion. Lenders also increasingly ask how exposed the business model is to disruption from artificial intelligence, particularly in software and services.³

2. Quality and visibility of earnings

Adjustments to EBITDA receive more scrutiny than before. Lenders want to understand what is recurring, what is contracted and what depends on assumptions. Clear reporting and a reconciliation between management figures and audited accounts shorten the credit process and reduce the scope for disagreement.

3. Structure matters as much as price

Amortisation profile, covenant set, security package, permitted acquisitions and distributions often matter more to the business than a few basis points of margin. Whether covenants are tested every quarter (maintenance) or only when the company takes a specific action (incurrence), the headroom set against the business plan, and the availability of an equity cure determine how much room the company has in a weaker year. A cheaper facility with tight covenants can cost far more in flexibility than it saves in interest. The right comparison is between complete term sheets, not headline pricing.

4. The full range of options

The options now include an amend and extend with incumbent lenders, a new bank club, a unitranche from a direct lender, asset-based finance against receivables, inventory or property, and hybrid or junior capital where senior capacity falls short. Some European banks now originate jointly with private credit funds, blurring the line between the two.³ Each source has different appetite, documentation and speed. A structured, competitive process across the relevant segment of the market is usually the most effective way to improve terms, and to keep a credible alternative if the incumbent's position changes.

5. Start early

A refinancing that begins 12 to 18 months before maturity gives the company room to prepare information, test the market and negotiate. In the leveraged finance market, convention is to address maturities at least 18 months in advance to avoid ratings pressure.⁴ Left until the final months, a refinancing becomes a negotiation under time pressure, often with a single counterparty. There is also an audit dimension: the going concern assessment looks at least twelve months ahead, and under the revised auditing standard that period runs from the approval of the accounts. A facility maturing inside that window without a clear refinancing route can become an audit issue. Early preparation also allows hedging decisions to be taken deliberately rather than by default.

6. Keep the incumbent relationship constructive

Refinancing does not have to mean changing lenders. In many cases the existing bank remains the best partner. A well-prepared process supports that relationship: it gives the incumbent clear information and a fair opportunity to compete, while ensuring the company knows what the wider market would offer.

How we help

Corvus Management advises companies and their shareholders on refinancing, acquisition finance and lender transitions. We prepare the credit case and financial model, assess the options from amend and extend to a new lender group, approach the right lenders, compare complete term sheets and negotiate through to signing. We are independent of any lender and paid by our clients only.

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