Restructuring Trends 2026: What Advisors Need to Know

The restructuring landscape for 2026 is poised for significant activity, shaped by a confluence of persistent economic headwinds, evolving legal precedents, and a macroeconomic environment fundamentally altered by sustained higher interest rates. Practicing restructuring professionals must strategically adapt their approaches to navigate these complexities and capitalize on emerging opportunities. This analysis provides a forward-looking perspective, identifying critical trends and offering insights for practice strategy.

I. Persistent Distress Across Key Sectors

While pockets of resilience exist, several sectors are expected to experience continued, and in some cases exacerbated, financial distress in 2026. The "higher for longer" interest rate environment, coupled with ongoing operational challenges, will be a primary driver.

The retail sector continues its multi-year transformation, but the pace and nature of distress are evolving. While the initial wave of e-commerce disruption has matured, brick-and-mortar retailers, particularly those with significant legacy footprints and high fixed costs, remain vulnerable.

* Discretionary Spending Slowdown: Elevated inflation and economic uncertainty are likely to continue dampening consumer discretionary spending, impacting apparel, home goods, and specialty retailers.

* Supply Chain Volatility: Despite some stabilization, geopolitical events and regional disruptions can still create supply chain bottlenecks and cost increases, eroding margins.

* Lease Liabilities: Many retailers are burdened by unfavorable long-term leases signed in different economic climates, making lease rejection and store rationalization a frequent component of retail restructurings.

* Specific Vulnerabilities: Expect continued distress among mid-tier department stores, regional malls, and non-essential goods retailers struggling to differentiate in a crowded market. Data from previous years indicates a consistent trend of retail bankruptcies, with companies like Tuesday Morning and Bed Bath & Beyond illustrating the ongoing challenges.

The healthcare sector faces a unique set of challenges stemming from labor dynamics, reimbursement pressures, and capital expenditure needs.

* Labor Shortages and Wage Inflation: The scarcity of qualified nurses, doctors, and support staff, exacerbated by pandemic burnout, continues to drive up labor costs significantly. Reports indicate wage growth in healthcare has outpaced other sectors.

* Reimbursement Pressures: Government payers (Medicare, Medicaid) and private insurers are increasingly scrutinizing costs and limiting reimbursement rates, squeezing margins for providers.

* Capital Investment: Many healthcare providers, particularly hospitals, require substantial capital investment for technology upgrades, facility maintenance, and compliance, which is more expensive to finance in a high-interest rate environment.

* Specific Vulnerabilities: Rural hospitals, skilled nursing facilities, and certain physician groups with high operating leverage or reliance on specific reimbursement models are particularly susceptible.

The commercial real estate (CRE) sector is confronting a significant reckoning, primarily driven by changing work patterns and the maturity wall of debt.

* Office Sector Distress: Hybrid and remote work models have fundamentally altered demand for office space, leading to elevated vacancy rates and declining property values in many urban centers. Major cities report office vacancy rates exceeding 20% in some submarkets.

* Maturity Wall: A substantial volume of CRE loans, estimated to be over $1.5 trillion, are scheduled to mature between 2024 and 2026. Many of these loans were originated when interest rates were near historic lows, making refinancing at current rates challenging or impossible for properties with diminished valuations and cash flows.

* Retail CRE: This segment continues to suffer from the broader retail sector's struggles, with decreased foot traffic and tenant bankruptcies impacting occupancy and rental income.

* Specific Vulnerabilities: Class B and C office buildings, regional malls, and highly leveraged multi-family properties that relied on aggressive valuation assumptions are at high risk. CMBS delinquency rates for office properties have shown a notable uptick, signaling rising distress.

The energy sector navigates the dual pressures of commodity price volatility and the global energy transition.

* Commodity Price Swings: While oil and gas prices have seen periods of strength, they remain subject to geopolitical events, global demand fluctuations, and OPEC+ production decisions. Small and mid-sized exploration and production (E&P) companies, and oilfield service providers, are particularly vulnerable to price downturns.

* Energy Transition: The long-term shift towards renewable energy sources and increasing ESG mandates from investors and regulators continue to pressure traditional fossil fuel companies. This creates a need for significant capital reallocation, which can be challenging for highly leveraged players.

* Capital Access: Access to capital for traditional fossil fuel projects is becoming more constrained, as investors increasingly prioritize sustainability, making refinancing or expansion difficult.

* Specific Vulnerabilities: Companies with high debt loads, those heavily invested in specific, less favored fossil fuel assets, or those struggling to pivot towards lower-carbon alternatives.

II. The Enduring Impact of Sustained Higher Interest Rates on Leveraged Companies

The most significant macroeconomic factor driving restructuring activity in 2026 will be the "higher for longer" interest rate environment. The era of ultra-low interest rates, which facilitated significant corporate leveraging, has definitively ended.

* Refinancing Risk: Companies that took on floating-rate debt or have debt maturing from the low-rate environment face a substantial increase in interest expense upon refinancing. Many corporate bonds and leveraged loans issued between 2018 and 2022 are maturing, presenting a formidable refinancing wall.

* Erosion of Cash Flow: Higher interest payments directly reduce free cash flow, limiting a company's ability to invest in growth, service other obligations, or withstand operational shocks. This pressure can quickly lead to liquidity crises.

* Covenant Breaches: Increased interest expense and potentially reduced EBITDA, driven by inflation and slower growth, can lead to breaches of financial covenants in loan agreements, triggering defaults and accelerating debt.

* Valuation Compression: Higher interest rates translate to higher discount rates in valuation models, depressing enterprise valuations. This makes asset sales less attractive and equity infusions more dilutive, complicating recapitalization efforts.

* Private Credit's Role: Private credit funds, which have grown significantly, will play a dual role. They offer flexible, albeit more expensive, financing solutions for companies unable to access traditional capital markets. However, their higher interest rates and often more aggressive terms can also contribute to distress if a company's performance falters. Restructuring professionals will increasingly engage with these sophisticated lenders.

III. Evolving Restructuring Deal Structures: LMTs and Chapter 11

The approach to restructuring will continue to evolve, with a dynamic interplay between out-of-court liability management transactions (LMTs) and formal Chapter 11 proceedings.

LMTs will remain a favored tool for companies and creditors seeking to avoid the cost, time, and public scrutiny of Chapter 11.

* Continued Prevalence: Expect exchange offers, consent solicitations, uptiering transactions, and priming financings to continue as companies proactively address debt maturities and covenant issues.

* Role of Ad Hoc Groups: The formation of ad hoc groups of dissenting creditors will become more common, often organized to challenge LMTs or negotiate for better terms.

* Sophistication: Both debtors and creditors will employ increasingly sophisticated legal and financial strategies to execute or oppose LMTs.

While LMTs offer speed and control, Chapter 11 will remain indispensable for complex cases requiring broad injunctive relief, operational restructuring, or the resolution of intractable creditor disputes.

* Prepackaged and Prearranged Filings: These streamlined Chapter 11 processes will remain the preferred path for large, consensual restructurings, offering greater certainty and efficiency than free-fall bankruptcies.

* Section 363 Sales: For companies with non-viable business models or assets that can be more valuable outside of the existing corporate structure, Section 363 asset sales will continue to be a dominant exit strategy. This is particularly true in sectors like retail and healthcare, where specific assets (e.g., store leases, hospital facilities) may have standalone value.

* Necessity for Complex Cases: Chapter 11 will be necessary when capital structures are too fractured, operational changes are too extensive, or creditor consensus cannot be achieved out-of-court.

LMTs are often a critical precursor to Chapter 11. A failed LMT can directly lead to a Chapter 11 filing, sometimes with a more contentious creditor landscape. Conversely, a successful LMT can simplify a subsequent Chapter 11, setting the stage for a smoother prepackaged or prearranged plan.

IV. The Rise of Cooperation Agreements

In an effort to mitigate the risks and costs associated with contentious restructurings, cooperation agreements among key stakeholders are becoming increasingly prevalent.

* Definition and Purpose: These agreements, often negotiated out-of-court, outline a consensual framework for a restructuring, typically involving the debtor, secured lenders, and sometimes equity sponsors or ad hoc groups of unsecured creditors. They aim to establish a roadmap for either an out-of-court workout or a prepackaged Chapter 11 plan.

* Benefits: Cooperation agreements reduce the likelihood of costly litigation, provide greater certainty regarding the restructuring outcome, and help preserve enterprise value by minimizing disruption. They represent a commitment from parties to work collaboratively.

* Drivers of Growth: The increasing complexity of capital structures, the desire to avoid the unpredictability and expense of LMT litigation, and the lessons learned from protracted, value-destructive Chapter 11 cases all contribute to the growing adoption of these agreements.

* Role of Advisors: Restructuring counsel and financial advisors play a crucial role in facilitating negotiations, drafting the terms of these agreements, and ensuring enforceability.

V. Regulatory Developments Shaping the Landscape

Legislative and judicial developments will continue to influence the strategies and outcomes of restructuring cases.

The ABI Commission to Study the Reform of Chapter 11 has issued comprehensive recommendations addressing various aspects of business bankruptcy.

* Potential Legislative Impact: While not all recommendations will be adopted, many are designed to enhance efficiency, reduce costs, and improve outcomes in Chapter 11 cases. Restructuring professionals should monitor legislative efforts that may incorporate these recommendations, particularly those related to intercreditor disputes, DIP financing, or plan confirmation standards. For example, recommendations related to disclosure and transparency in LMTs could impact how these transactions are structured and challenged.

* Long-Term Influence: Even without direct legislative action, the ABI Commission's work provides a framework for judicial interpretation and best practices, subtly influencing how cases are administered and resolved.

Subchapter V, enacted as part of the Small Business Reorganization Act of 2019, has proven to be a highly effective and popular tool for small businesses.

* Continued Growth and Utilization: The streamlined process, lower administrative costs, and debtor-friendly provisions (e.g., no absolute priority rule, no U.S. Trustee fees, appointment of a Subchapter V Trustee) make it an attractive option for eligible businesses. The number of Subchapter V filings has consistently increased since its inception, demonstrating its utility.

* Effectiveness: Subchapter V provides a viable path for small businesses to reorganize, preserving jobs and businesses that might otherwise liquidate.

* Expansion Potential: Discussions regarding increasing the debt limit for Subchapter V eligibility may resurface, potentially expanding its reach to a broader segment of the small-to-medium enterprise (SME) market. Professionals should be prepared for potential adjustments to the eligibility criteria.

VI. Growth in Cross-Border Restructuring

The interconnectedness of the global economy ensures that cross-border restructuring will continue to be a significant area of practice.

* Globalization of Distress: Multinational corporations with assets, operations, and creditors in multiple jurisdictions are increasingly facing financial distress. Economic downturns or sector-specific challenges in one region can quickly cascade globally.

* Increased Complexity: These cases present intricate legal and practical challenges, including jurisdictional conflicts, the enforcement of foreign judgments, and reconciling disparate insolvency laws.

* Chapter 15 of the U.S. Bankruptcy Code: Chapter 15, which incorporates the UNCITRAL Model Law on Cross-Border Insolvency, will continue to be the primary mechanism for recognition and cooperation between U.S. courts and foreign insolvency proceedings. Expect a steady volume of Chapter 15 filings as foreign representatives seek to protect assets and coordinate efforts in the U.S.

* Forum Shopping and Coordination: Debtors and creditors will continue to explore optimal forums for their restructuring needs, requiring sophisticated advice on jurisdictional choice and cross-border coordination strategies.

* Demand for Expertise: There will be a sustained demand for advisors with deep expertise in international insolvency law, private international law, and experience in coordinating complex multinational cases.

VII. Emerging Opportunities for Advisory Firms

The evolving restructuring landscape presents significant opportunities for advisory firms that are agile, forward-thinking, and strategically positioned.

* Proactive Advisory and Balance Sheet Management: The "higher for longer" interest rate environment demands a shift from reactive bankruptcy work to proactive balance sheet management. Firms can offer services in liquidity forecasting, covenant monitoring, debt maturity analysis, and strategic capital structure reviews for both healthy and near-distressed companies. This preventative approach helps clients identify and address issues before they become critical.

* Specialized Sector Expertise: Deep industry knowledge will be paramount. Firms with specialized teams in retail, healthcare, real estate, and energy, understanding the unique operational, regulatory, and market dynamics of these sectors, will be highly sought after.

* LMT Advisory and Litigation Support: As LMTs become more complex and litigious, firms advising on structuring, challenging, or defending these transactions will see increased demand. This includes expertise in intercreditor agreements, fiduciary duties, and valuation disputes.

* Private Credit Engagement: The growing influence of private credit funds creates opportunities to advise both borrowers seeking bespoke financing solutions and the private credit lenders themselves on restructuring distressed portfolio companies. Understanding the nuances of private credit documentation and deal structures is critical.

* ESG and Sustainability Advisory: Integrating Environmental, Social, and Governance (ESG) factors into restructuring plans, particularly for companies in the energy, manufacturing, and transportation sectors, will become more common. Firms that can advise on "green" restructuring or help companies transition to more sustainable models will have a competitive edge.

* Technology Integration and Data Analytics: Leveraging data analytics, artificial intelligence (AI), and predictive modeling for early warning signs of distress, scenario planning, and efficient case management will be a differentiator. Firms that embrace these technologies can provide more insightful advice and streamline processes.

* Cross-Border Collaboration and Networks: Building strong relationships with international law firms and financial advisors will be essential for handling the increasing volume and complexity of multinational restructurings.

* Subchapter V Practice Development: For firms seeking to diversify their client base, developing a robust Subchapter V practice can tap into the significant market of small businesses seeking efficient reorganization.

Conclusion

The restructuring environment for 2026 will be characterized by persistent challenges, particularly from the sustained impact of higher interest rates and sector-specific headwinds. Restructuring professionals must be adaptable, innovative, and proactive in their strategies. The continued evolution of deal structures, the rise of cooperation agreements, and significant regulatory developments will shape the playing field. By understanding these trends and strategically positioning their practices, advisory firms can effectively navigate the complexities and capitalize on the emerging opportunities, playing a vital role in preserving value and facilitating economic recovery.