The COVID-19 pandemic delivered one of the most severe economic shocks in Europe’s recent history. Yet the restructuring wave many expected never fully arrived. Liquidity surged, insolvencies remained muted, and capital flowed at unprecedented speed. At first glance, this resilience suggests the worst is behind us. But our latest report, Restructuring Report 2021, reveals a more complex reality — one in which high leverage, uneven sector recovery, and persistent uncertainty could still produce a delayed surge in corporate distress. Understanding how the restructuring ecosystem has evolved, and where vulnerabilities remain, is essential for corporates, lenders, and policymakers preparing for the next phase of Europe’s recovery.
How COVID-19 reshaped the European economic landscape
The pandemic ended six consecutive years of growth across the EU 27, with GDP contracting by 7.6% in 2020. The severity of the decline varied sharply across countries. Germany experienced a relatively contained contraction of five percent, while France, Italy, and Spain saw declines of 10 to 11 percent. These differences reflect not only the duration of lockdowns but also the structural resilience of national economies. Countries with strong industrial bases weathered the shock more effectively, while those reliant on tourism and services absorbed deeper losses. This divergence will shape where restructuring pressures emerge in the years ahead.
COVID’s effects across industries were even more uneven. Travel and leisure experienced a near total collapse, with revenues falling more than 30% and EBITDA margins dropping by roughly 11 percentage points. Automotive suffered a sharp early decline but recovered in the second half of 2020 as supply chains reopened and demand rebounded. Meanwhile, retail and electrical equipment remained comparatively stable. These sector level differences matter: industries that absorbed the deepest shocks are now the most vulnerable to a delayed restructuring wave, particularly as liquidity buffers begin to erode and debt obligations come due.
The report highlights a profound shift in how restructuring professionals operate. Web conferencing rapidly replaced in person meetings, digital collaboration tools became standard, and business travel dropped dramatically. Remote work became the norm, reshaping how teams collaborate and how clients are served. While respondents noted that building new relationships and winning new business became more challenging, they also reported meaningful benefits: shorter, more focused meetings and higher productivity. These changes are likely to endure, influencing how restructuring engagements are delivered and how stakeholders interact long after the pandemic.
Corporate liquidity surged despite falling revenues
One of the most striking findings is the disconnect between operational performance and liquidity. In the second quarter of 2020, revenues among European nonfinancial corporates fell by 20% year on year, and EBITDA margins declined by 2.4 percentage points. Yet cash balances increased by 37 percent. This counterintuitive outcome was driven by a surge in debt financing. Net debt to EBITDA rose from 2.4x to 3.8x, signaling a significant increase in leverage across the corporate landscape.
Unlike the 2008 financial crisis, when lending contracted sharply, the COVID-19 shock saw a rapid expansion of loans. State-backed financing programs, private debt funds, and institutional investors all stepped in to provide liquidity. This influx of capital cushioned the immediate impact of the crisis but created a new challenge: refinancing and repayment in a more uncertain economic environment.
Restructuring pressures are rising among smaller companies
Despite the scale of the economic shock, restructuring cases among large corporates remained surprisingly limited. Most banks reported that restructuring activity for large and very large companies stayed stable or even declined. Smaller companies, however, experienced a very different reality. Many struggled to access capital and were more exposed to sudden revenue shocks, leading to a noticeable rise in restructuring cases. This bifurcation suggests that while large corporates have delayed distress through borrowing, the underlying issues may resurface as debt matures and state aid programs expire.
The report’s most important forward-looking insight is the overwhelming expectation of rising distress. Eighty-three percent of surveyed experts anticipate more companies entering crisis mode — the highest level recorded since the survey began in 2012. Elevated leverage, pre-existing strategic weaknesses, and uncertainty about the pace of recovery all contribute to this outlook. Many experts also highlighted the difficulty of forecasting demand as a major challenge, making it harder for companies to plan capacity, deploy capital, and rebuild profitability. Concerns about banks’ willingness to provide new financing further complicate the picture, opening the door for alternative capital providers such as private debt funds and special situations investors.
Government support must shift toward enabling restructurings
State aid played a crucial role in stabilizing the economy in 2020, but experts believe the next phase requires a different approach. The most valued forms of government support include legal frameworks that make out-of-court restructurings easier, programs that stimulate innovation and demand, and broad-based state aid mechanisms that do not distort competition. Direct financial support to individual companies is viewed as less effective and potentially counterproductive, as it may delay necessary restructuring and hinder market forces. Policymakers will need to focus on enabling efficient restructuring processes and fostering long term economic growth.
Why Europe’s stability today does not guarantee stability tomorrow
Europe’s corporate sector weathered the initial shock of COVID-19 thanks to unprecedented liquidity support. But this resilience masks deeper vulnerabilities. High leverage, uneven sector recovery, and persistent uncertainty mean the real restructuring wave may still lie ahead — particularly for larger companies that borrowed heavily to survive the crisis. To navigate what comes next, corporates must focus on strategic flexibility, operational excellence, and credible business designs that restore lender confidence. The crisis has been cushioned, not resolved, and the next phase will test the adaptability and resilience of Europe’s corporate landscape in ways that will shape the decade ahead.
Originally published in June 2021.
