Distressed Firms’ Earnings Are Falling Too Fast for Quick Fixes

(Bloomberg) — For Europe’s more troubled companies, the sticking-plaster approach to debt management is no longer working.

Sluggish growth, weak sales and tariff uncertainty are depressing earnings, which in some cases are deteriorating so fast that companies’ attempts to put their capital structure on a sustainable footing are outdated almost before they’re finalized.

Packaging firm Kloeckner Pentaplast, ceramics maker Panariagroup and French chemicals business Kem One are among the businesses seeing their results worsen significantly as they attempt to stabilize their finances. Spokespeople for the three companies didn’t respond to requests for comment.

Since April, earnings estimates for this year have been revised down in 19 out of 22 sectors, data from S&P Global Ratings shows, with the biggest adjustments for paper and packaging, autos and the chemicals sectors.

Even so, there are early signs of a brighter outlook. Third-quarter guidance points to improving earnings momentum and a broader recovery taking shape in 2026, according to data compiled by Bloomberg Intelligence, even as chemicals, autos, and other cyclical industries continue to struggle.

For weaker firms, the picture is less encouraging. Workout bankers are predicting a rise in European debt restructuring activity during the first half of 2026, having previously forecast a peak before the end of this year, according to surveys carried out by EY-Parthenon.

Part of the problem stems from the desire for quick fixes. In many cases, the company and its lenders start discussions aiming for a so-called amend-and-extend deal. Such arrangements typically benefit the borrower by allowing them to modify certain conditions governing their debt — usually by pushing back the maturity date and tweaking terms — and also helps lenders avoid immediate losses.

Crucially, however, such deals don’t actually reduce a company’s overall debt burden, leaving it exposed to renewed financial stress — and, in some cases, to so-called liability management exercises, or LMEs, where firms rework existing obligations outside formal restructuring processes.

“As earnings trajectories for lower-rated credits decline, while financial conditions aren’t easing as much as the market requires, the most levered companies will continue to suffer from the threat of LMEs,” Isharsimran Sawhney, a senior credit analyst at London-based Ironshield Capital Management, said. “Smaller issues with liquidity problems and upcoming maturities, without levers to raise new capital could quickly turn into drawn out restructurings.”

Amend-and-extend deals have become a common tool for both private equity-backed and independent companies, allowing them to buy time and defer refinancing pressures. However, they offer limited relief when earnings weaken and liquidity gaps begin to appear.

“If you have a situation of temporary stress, that’s one thing,” Daniel Butters, CEO of Teneo’s financial advisory arm, said. “But if you have a more deep-seated problem or one where you aren’t going to be able to reverse the trading situation, that’s inevitably going to drive lenders to a more comprehensive solution, or even to a takeover of the business.”

Plunging Earnings

Case in point is Strategic Value Partners’ Kloeckner Pentaplast, which filed for bankruptcy in the US earlier this month. The company, which makes coverings for foodstuffs, pills and credit cards, had been in advanced negotiations over an amend and extend of its senior liabilities, with its sponsor set to inject about €300 million of fresh capital to get the deal done.

But its performance deteriorated faster than expected against a worsening macroeconomic backdrop, and cash was running out. In July, the company slashed its earnings forecast for the year by around 20%, prompting the suspension of the planned debt deal, according to court filings.

“This continued downward trend in the company’s overall performance made it more challenging to provide new equity,” Marc Rotella, Kloeckner Pentaplast’s chief financial officer, said in a declaration to the Texas bankruptcy court. “At the beginning of August, the parties pivoted toward negotiating a comprehensive restructuring transaction instead.”

Since then, the projections for the year have declined by a further 18%, the filings stated.

In the agreement put forward in the Chapter 11 proceedings, first-lien creditors are set to take control of the business, and about two thirds of their nominal debt exposure will be written off.

A spokesperson for SVP declined to comment.

Rethinking Strategy

Family-owned Italian ceramics firm Panariagroup Industrie Ceramiche SpA has also had to rethink its strategy in the wake of underwhelming earnings.

The company began debt talks with its relationship banks early in the year, aiming for an amend-and-extend deal that spared lenders any losses. That was always going to be a stretch given how the business was performing.

Sure enough, Panariagroup was subsequently forced to change its proposal, with lenders asked to slash over half of their holdings in exchange for equity-like instruments.

“You need a coherent, realistic set of numbers and then a sensible level of downside risk that can be baked into the forecast, to satisfy creditors that there is some headroom on the business plan,” Teneo’s Butters said, speaking about restructuring situations generally.

Temporary Remedy

For others, while they might have been able to finalize a temporary fix, deteriorating performance is quickly pushing stakeholders back for another round of discussions.

Apollo-owned French chemicals business Kem One, for example, obtained €200 million of fresh funding earlier this year, to repay its lender banks and fend off a liquidity crunch.

Monarch Alternative Capital and Arini provided the cash. But in the months since, the business has shown no signs of recovery and no improvement is expected by the end of the year, the management said in its latest set of earnings.

In the meantime, a group of holders of the more junior bonds including Arini itself, has organized with legal counsel Gibson Dunn and is banding together with a cooperation agreement.

A representative for Apollo declined to comment.

“It’s difficult to tell which credits just need time, and which ones need a whole retool,” said Ed Eyerman, chief executive officer for the buyside-only European Leveraged Finance Association. “There is a trade-off between sustainability of the capital structure going forward and haircuts for creditors. That balance is where we want to get to.”

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