Europe’s most troubled companies: Who’s hit hardest by high interest rates?

High borrowing costs put Europe’s weakest corporate borrowers under pressure

Poinews.com – Europe’s most indebted companies are facing a renewed test as interest rates rise and large debt repayments move closer. For many businesses, slightly higher financing costs are an inconvenience. For companies carrying heavy borrowings and weak credit ratings, they can determine whether refinancing remains available at all.

The group under greatest scrutiny includes several household names: Merlin Entertainments, which operates Legoland and Madame Tussauds; tea owner CVC Capital Partners-backed Lipton Teas and Infusions; residential property manager Heimstaden; and telecommunications businesses associated with billionaire Patrick Drahi. Aston Martin, the British sports-car manufacturer closely linked with the James Bond films, is also among companies exposed to the difficult market.

Many of these businesses took on substantial debt during the era of near-zero rates. They are now rated in, or near, the CCC category, among the lowest rungs of the credit-rating scale before default. As existing loans and bonds reach maturity, replacing them is becoming substantially more expensive.

Central banks reverse direction

The European Central Bank had reduced rates through 2025, but changed course after the conflict involving Iran contributed to higher energy costs and inflation. In June, the ECB raised its deposit rate for the first time in almost three years. A further increase in September brought that rate to 2.5%.

The US Federal Reserve also lifted borrowing costs in September, setting its policy rate in a 3.75% to 4% range. While corporate funding conditions are shaped by more than central-bank policy, higher benchmark rates feed into the cost of new loans, bonds and refinancing arrangements.

“Higher for longer is a slow squeeze for low-quality credit,” Torsten Slok, chief economist at Apollo Global Management, wrote in a note published on Friday.

Slok said rate increases operate with delays and do not affect all borrowers in the same way. Companies rarely refinance every loan simultaneously, so the impact can emerge over several years. Debt becomes most difficult when a borrower reaches a maturity date and must convince investors to provide replacement funding at today’s higher yields.

Why CLO exposure matters

Collateralised loan obligations, commonly known as CLOs, are an important part of this market. Their managers buy large collections of corporate loans, package them into portfolios and finance those portfolios with investor money. The arrangement means financial stress at lower-rated companies can be spread across a broad group of loan investors.

European CLOs held €5.3 billion in loans to CCC-rated companies due in 2028 at the end of June. That figure had climbed from €3.5 billion at the end of 2025. Six of the 10 largest CCC-rated borrowers identified in an S&P Global Ratings review face debt maturities during 2027 or 2028, concentrating attention on the next few years.

Investor yields provide a practical indication of concern. When lenders demand a high return, they are signalling that they see greater risk in the borrower. A decline in yields, by contrast, can suggest that investors have become more confident that repayment or refinancing can be managed.

Restructuring can shift the burden

French care-home operator Colisée illustrates the consequences when debt reaches an unsustainable level. The company runs nursing and elderly-care facilities in several European countries. A Paris court approved its restructuring plan in April, allowing lenders to exchange part of their debt for equity while extending most remaining borrowings to 2031.

The transaction was treated as a default by S&P, which later raised Colisée’s rating to CCC+ in May. By the time of S&P’s July market snapshot, the company’s senior debt was yielding roughly 5%. The lower yield reflected the fact that a substantial portion of the financial pain had already been dealt with through the restructuring.

That process can give a business more time to operate, but it also changes who bears the cost. Creditors may become owners, while existing shareholders and lenders can face significant losses or reduced influence.

Warehouse systems and visitor attractions

Belgian company Stow Group manufactures warehouse storage systems and automated logistics equipment. Its work includes the racking, shelving and automated storage infrastructure used in large distribution centres. European CLOs held €364 million of Stow loans, while its next major maturity is scheduled for September 2028.

S&P rates Stow at CCC+ with a stable outlook. Its senior debt was yielding about 9% in July, reflecting a higher perceived level of risk than stronger corporate borrowers but less immediate pressure than companies facing near-term repayments.

Merlin Entertainments faces a more closely watched refinancing challenge because of both its size and its public profile. The company owns Legoland parks, Madame Tussauds, Sea Life aquariums and the London Eye. Its owners include KIRKBI, the Lego family’s investment company, alongside Blackstone and Canadian pension fund CPP Investments.

European CLO portfolios held €583 million of Merlin loans. In July, yields on its senior debt stood at around 12% to 13%, a level that underscored concern over the company’s leverage. Conditions improved in early September after Merlin arranged new financing to address debt due in 2027.

Its 4.5% euro bond due in November 2027 rose from roughly 95 cents on the euro to about 98 cents. That move implied a yield of approximately 6% to 7%. The improvement does not remove Merlin’s high debt burden, but it reduces the immediate danger that the company will be unable to refinance when its 2027 obligations fall due.

A narrow path to refinancing

Solera, a US software company whose loans are widely held by European funds, also appears in the lower-rated borrower universe. Its technology is used across the motor industry: insurers use it to assess crash damage, repair businesses use it in claims management, and vehicle companies rely on its data platforms. Vista Equity Partners owns Solera, which has a CCC+ rating from S&P.

The central issue for highly leveraged borrowers is no longer simply the level of their existing debt. It is the price and availability of the next loan. Companies that secure extensions, raise fresh funding early or persuade creditors to restructure may gain valuable time. Those unable to do so could face increasingly difficult negotiations as maturities approach.

For investors, the period ahead will distinguish between companies with a credible route to refinancing and those whose debt loads leave little room for error. Higher rates may be manageable for healthy businesses, but for the weakest borrowers, the slow effect of more expensive money is becoming much harder to ignore.