After three takeovers by financial investors, Klöckner Pentaplast is burdened with more than 1.7 billion euros in debt. Following the takeover by Cinven, the consumer packaging manufacturer was sold to Blackstone, and then passed on to Strategic Value Partners in 2012. The deal was part of a financial restructuring during which SVP injected 190 million euros into the company and obtained a majority stake. But now the company from Montabaur in Rhineland-Palatinate is once again on the brink of collapse. The credit rating stands at „CCC-“ from S&P Global Ratings, with a negative outlook.

There had already been a selective default on the bonds. The debt instruments will mature in 2026, and then things could get tight: „We believe that the group's debt burden remains very high compared to its free operating cash flow. This could undermine the refinancing prospects of this debt,“ said Frankfurt-based S&P analyst Lina Sanchez in May.

Klöckner Pentaplast is not an isolated case. S&P states that the default rate of high–yield bonds classified as „speculative“ is currently high and is only gradually decreasing. „In the twelve months to March 2026, the rate is likely to fall from 4.1% to 3.6%,“ Tobias Mock, chief analyst at the rating agency in Germany, told Börsen-Zeitung. „The default rate began to fall in the fourth quarter of 2024 and is slowly approaching the historical average again.“ Restructurings and debt rescheduling are occurring more frequently than usual.

Bonds in the non-investment grade segment (with a rating of „BB+“ or lower) are described as „speculative“. Most of the companies in Germany with such a rating are owned by private equity firms. The supplier Standard Profil Automotive of the Actera Group, for example, has already partially defaulted on 275 million euros of debt.

Firms with comparably poor credit ratings to Klöckner Pentaplast are the home shopping channel HSE 24 owned by Providence Equity Partners, and the real estate group Branicks with Deutsche Immobilien Chancen (DIC) as a major shareholder, as well as the fibre optic provider Tele Columbus owned by a Morgan Stanley infrastructure fund.

The second largest debt mountain in Germany after Klöckner Pentaplast among private equity-owned companies in the categories below „B-“ is held by the timber company Pfleiderer – with an outstanding volume of 751 million euros according to S&P. Like Klöckner Pentaplast, the company, which was once listed on the Warsaw Stock Exchange, is owned by Strategic Value Partners.

Not all debts will be repaid. Loan defaults had already started to increase two years ago. In the case of the German printing supplier Flint Group, which legally moved from Luxembourg to Jersey, as well as the fashion discounter Takko Fashion and the elevator supplier Wittur, creditors already had to forego part of their money in 2023. Creditors reluctantly unintentionally took over control from the previous owners Goldman Sachs (Flint), the private equity firm Apax (Takko),and Bain Capital (Wittur).

The poor growth prospects are also causing the highly indebted portfolio companies of the private equity firms to falter. There are already a number of distressed or „special opportunities“ funds that are looking at restructuring cases to see if there is an opportunity to acquire shares at a good price, observes Mock.

After „Liberation Day“ on April 2, the tariff conflicts led to the primary markets for issuing new corporate bonds all but closed for business. „There were virtually no new issues at the beginning of April. That made everyone very nervous. But since May and even more so in June, the capital markets have been open again and we have seen new record volumes of bond issues in some cases,“ said Mock.

In fact, according to J.P. Morgan, the European leveraged finance markets are currently breaking issuance records. The volume of leveraged loans and high yield bonds being issued so far this year is higher than ever before, totaling 180 billion euros. Monday, June 23, was the busiest day yet on the European leveraged finance markets.

Fortunately for speculative grade companies in Europe, there are also few maturity dates in the short term: „This reduces the need for extensive market access for debt refinancing in the second half of the year,“ says the chief analyst.

Most companies have only recently refinanced, and the lion's share of maturities are not due until 2028. According to Mock, only 41.5 billion euros still needs to be refinanced in the high yield market across Europe in 2025: „That's not much.", he notes. In contrast, 126.5 billion euros will be needed for 2026 and as much as 270.6 billion euros for 2028.

High yield issuers are refinancing at lower interest rates than six or nine months ago. „Refinancing is relatively cheap at the moment. The risk premium for high yield companies compared to risk free government bonds is only 300 basis points,“ said Mock. „As benchmark interest rates have fallen, this is not too expensive.“ However, according to Mock's observations, investors are paying close attention to which companies are affected by tariffs, or other uncertainties. In these cases, they demand higher risk premiums, as the recent ZF Friedrichshafen bond showed. „If the tariff dispute escalates, the disruption to national economies could lead us to look more to our pessimistic scenario for defaults,“ said Mock. A default rate of around 5.25% would then be expected by next March.