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Revelle Capital

Transaction Type

Rescue and Turnaround Financing

Specialist private credit solutions for distressed and underperforming businesses. Urgent stabilisation capital, restructuring finance, and special situations lending for companies navigating operational or financial distress.

300+Lenders
15+Years Experience
100+Clients Served
10+Jurisdictions Covered

What Is Rescue and Turnaround Financing via Private Credit?

Rescue and turnaround financing through private credit refers to debt capital provided by specialist lenders to businesses experiencing financial distress, operational underperformance, or liquidity crises. These situations arise when a company can no longer service its existing obligations, faces covenant breaches or defaults on its current facilities, or requires urgent capital injection to stabilise operations and fund a restructuring plan. Traditional banks, constrained by regulatory capital requirements and institutional risk aversion, are rarely willing to extend new credit to distressed borrowers - creating a gap that specialist private credit funds have filled with purpose-built capital solutions.

The range of structures deployed in rescue and turnaround financing reflects the diversity of distressed situations. At one end, new money facilities provide immediate liquidity to prevent business failure - analogous to debtor-in-possession (DIP) financing in US Chapter 11 proceedings, though European restructuring frameworks provide different legal mechanisms. These facilities are typically super-senior, ranking ahead of all existing creditors and secured by a first-priority lien on the company's assets, providing the new money lender with maximum protection. At the other end, longer-term turnaround capital funds the operational transformation that restores the business to sustainable profitability - financing working capital during a restructuring, funding redundancy programmes, or providing capital for the strategic repositioning of the business.

Private credit has become the dominant source of rescue and turnaround capital in Europe for several interconnected reasons. First, specialist distressed and special situations funds maintain dedicated teams with restructuring expertise, industry knowledge, and the operational resources to monitor and support turnaround situations actively. Second, these funds have permanent or long-dated capital structures that allow them to hold distressed positions through the full turnaround cycle, which may take 2-4 years. Third, the return profile of rescue financing - higher margins, arrangement fees, equity participation, and asset coverage - is attractive to funds targeting 15-25% gross returns, well above the returns available in performing credit markets. And fourth, the competitive dynamics are favourable: when banks withdraw from distressed situations, the number of alternative capital providers willing and able to step in is limited, giving specialist lenders significant pricing power.

The restructuring toolkit available to European borrowers has expanded significantly in recent years, with the introduction of new frameworks such as the UK Restructuring Plan (Part 26A of the Companies Act 2006), the Dutch WHOA, and the EU Preventive Restructuring Directive. These frameworks create legal mechanisms that allow financially distressed companies to restructure their liabilities while continuing to trade, often with the support of new money from private credit lenders. The combination of improved legal frameworks and deep pools of specialist private credit capital means that European companies facing financial difficulty now have more options for rescue and turnaround than at any previous point.

When to Use This Structure

Rescue and turnaround financing through private credit is appropriate when a business has viable underlying operations but faces financial or operational challenges that cannot be resolved within the constraints of its existing capital structure. The following scenarios represent the core use cases for specialist distressed lending.

Imminent liquidity crisis where the business will exhaust its cash reserves and available credit lines within weeks or months, requiring an urgent injection of new capital to maintain operations, pay suppliers, and meet payroll obligations
Covenant breach or default on existing facilities where the existing lenders are unwilling to provide additional capital or extend waivers, and the borrower needs a replacement facility or new money to cure the default and stabilise the situation
Operational turnaround requiring capital to fund restructuring costs including redundancy programmes, facility closures, supply chain reorganisation, and management changes - costs that existing lenders will not fund
Distressed M&A where a strategic or financial buyer acquires a troubled business at a significant discount and requires financing to fund the acquisition and the subsequent operational transformation
Pre-pack or accelerated M&A processes where a business in administration or equivalent insolvency process is sold to a new owner who requires immediate financing to restart operations and fund working capital
Situations where the existing capital structure is unsustainable but the business has a viable future under a restructured balance sheet - new money from private credit can fund the restructuring process and provide the go-forward capital structure
Seasonal or cyclical businesses experiencing a severe downturn that has depleted reserves and stretched credit lines beyond their limits, but where the underlying business model remains sound and will recover with sufficient liquidity support
Companies facing litigation, regulatory action, or reputational events that have triggered bank withdrawal but where the core business operations remain profitable and the adverse event is manageable with adequate capital and time

How It Works

Rescue and turnaround financing operates under extreme time pressure and requires a fundamentally different approach from standard private credit transactions. The process prioritises speed of execution and commercial pragmatism over perfection. Typical timelines range from 2-6 weeks for the initial rescue financing, with longer-term turnaround facilities structured over 4-8 weeks as the situation stabilises.

1

Rapid Situation Assessment

The process begins with an intensive assessment of the distressed situation, typically conducted over 3-7 days. This includes a review of the company's current cash position and near-term liquidity forecast, the terms and status of existing debt facilities (including any defaults, standstills, or enforcement actions), the operational drivers of the distress (cyclical downturn, management failure, competitive disruption, customer loss), the viability of the underlying business absent its current financial constraints, and the legal framework available for restructuring. Revelle Capital works with the company, its existing advisers, and potential rescue lenders to build a rapid but robust understanding of the situation. The output is a preliminary restructuring thesis and a target capital structure for the rescue financing.

2

Identifying Rescue Capital Providers

Specialist distressed and special situations funds are a distinct subset of the private credit market. We identify 3-5 lenders with relevant experience, available capital, and the operational infrastructure to move at the speed the situation demands. Key selection criteria include the fund's experience with similar distressed situations, its ability to commit capital quickly (some funds have delegated authority for distressed situations that bypasses standard committee timelines), its appetite for the specific security and structural protections available, and its track record of working constructively through turnaround situations rather than enforcing at the first opportunity.

3

Term Sheet and Accelerated Due Diligence

Rescue financing term sheets are typically agreed within 1-2 weeks - significantly faster than standard private credit processes. The lender conducts accelerated due diligence focused on the critical questions: is the business viable, is the proposed security sufficient, can the rescue capital stabilise the situation, and what is the realistic recovery in a downside scenario? Due diligence in distressed situations is inherently limited by the quality of available information and the time constraints. Lenders price this uncertainty into their terms - margins, fees, and structural protections are all higher than for performing credit. The term sheet will specify the quantum and draw-down mechanics of the rescue facility, the security package (typically super-senior, first-priority), intercreditor arrangements with existing lenders, and the key milestones of the turnaround plan.

4

Legal Framework and Intercreditor Negotiation

The legal structure of rescue financing depends on the severity of the distress and the cooperation of existing creditors. In a consensual scenario, existing lenders agree to subordinate their claims to the new money provider and grant a standstill on enforcement while the turnaround is executed. In a contested scenario, the company may need to use formal restructuring tools - a UK Restructuring Plan, a scheme of arrangement, or administration - to cram down dissenting creditors and create the legal framework for new money to come in. Negotiating intercreditor terms between the rescue lender, existing secured creditors, and unsecured creditors is often the most complex and contentious aspect of the process.

5

Funding and Active Monitoring

Once terms are agreed and the legal framework is established, the rescue facility is drawn to provide immediate liquidity. The lender typically requires enhanced monitoring and governance rights, including weekly or bi-weekly cash flow reporting, representation on the board or a restructuring committee, approval rights over significant expenditures or operational decisions, and regular updates on the turnaround plan milestones. The intensity of monitoring reflects the risk profile - the lender has deployed capital into a distressed situation and needs real-time visibility on whether the turnaround thesis is materialising. As the business stabilises and the turnaround progresses, monitoring requirements typically step down to monthly or quarterly reporting.

6

Exit and Permanent Capital Structure

The rescue financing is designed to be transitional. The exit path depends on the success of the turnaround. In the best case, the business recovers and refinances the rescue facility with performing private credit or bank debt at significantly lower pricing. In many cases, the rescue lender converts or rolls into a longer-term turnaround facility on adjusted terms. In some cases, the lender exercises its equity participation rights (warrants or conversion options) and becomes a shareholder in the restructured business. The typical holding period for rescue and turnaround capital is 2-4 years, significantly longer than standard private credit durations, reflecting the time required to execute a meaningful operational transformation.

Typical Terms

Rescue and turnaround financing terms reflect the elevated risk profile, limited competition, and urgent timeline of distressed situations. The ranges below represent current European market conditions for mid-market rescue financings.

Facility Size
EUR 5-75M
Sized to cover immediate liquidity needs plus working capital for 6-18 months of turnaround execution
Pricing
12-20% all-in cost
Combination of cash margin (EURIBOR/SONIA + 800-1200 bps), PIK interest, and arrangement fees; reflects distressed risk premium
Arrangement Fee
2.5-5.0% of facility
Higher than performing credit to compensate for accelerated diligence, structuring complexity, and execution risk
Tenor
18-36 months
Shorter than standard private credit; designed to bridge to a permanent capital structure or exit event
Security
Super-senior, first-priority all-asset security
Rescue capital ranks ahead of all existing creditors; security package is maximised to protect the new money position
Equity Participation
5-20% warrant coverage or conversion rights
Significantly higher equity participation than performing credit; reflects the risk profile and the lender's role in the turnaround
Financial Covenants
Weekly cash flow testing, minimum liquidity, milestone covenants
Much tighter monitoring than performing credit; covenants tied to the turnaround plan and cash preservation
Governance Rights
Board observer or director appointment rights
Lenders require active governance participation; may include approval rights over capex, new hires, and strategic decisions above thresholds
Reporting
Weekly cash flow reports, monthly management accounts
Enhanced reporting frequency compared to performing credit; may include daily cash position reporting during the acute phase
Drawdown Mechanics
Initial draw plus milestone-based tranches
Lenders protect against deploying all capital upfront; subsequent tranches released as turnaround milestones are met
Prepayment
103/102/101 over the first three years
Higher call protection than performing credit; lenders seek to protect their return in a successful turnaround scenario
Break Fee
1.5-3.0% if the facility is not drawn after commitment
Compensates the lender for opportunity cost and diligence expenses in the event the transaction does not proceed

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Private Credit vs Bank Lending

In distressed and turnaround situations, the choice between private credit and bank financing is rarely a genuine comparison - banks are almost universally unwilling to provide new capital to distressed borrowers. The table below illustrates the fundamental differences in approach and capability.

Private CreditvsBank Lending
Willingness to Lend
Private CreditSpecialist distressed funds actively seek turnaround opportunities. Purpose-built capital mandates with return targets of 15-25% are designed for this risk profile. Teams have deep restructuring expertise.
Bank LendingBanks are structurally unwilling to extend new credit to distressed borrowers. Regulatory capital charges, provisioning requirements, and reputational risk make new money lending to stressed credits uneconomic for banks.
Speed of Execution
Private Credit2-4 weeks from engagement to initial funding for urgent rescue financing. Specialist teams and delegated authority structures allow rapid credit approval. Abbreviated diligence reflects the reality of distressed timelines.
Bank LendingEven where banks are willing (rare), standard credit approval processes take 8-16 weeks. Distressed credits require additional internal approvals, including risk committee and potentially regulatory consultation.
Structural Expertise
Private CreditDedicated restructuring professionals who understand intercreditor dynamics, insolvency frameworks, cram-down mechanics, and the legal tools available in each European jurisdiction. Experience managing complex multi-creditor negotiations.
Bank LendingBank restructuring teams exist but are focused on managing existing exposures, not originating new money into distressed situations. The skill set is defensive (protecting the bank's position) rather than offensive (deploying new capital).
Governance and Support
Private CreditActive governance participation through board representation, operational monitoring, and hands-on support. Some funds deploy operating partners and industry specialists to support the turnaround alongside their capital.
Bank LendingBanks maintain arm's length relationships and avoid governance involvement due to shadow director liability concerns and regulatory constraints on direct management intervention.
Return Expectations
Private CreditTargets 15-25% gross returns through a combination of margin, fees, equity participation, and asset recovery. The return compensates for the genuine risk of loss in distressed situations.
Bank LendingBank return hurdles of 8-12% on risk-adjusted capital are insufficient to compensate for distressed credit risk. The economic case for new bank lending to distressed borrowers simply does not work under current regulatory frameworks.
Capital Durability
Private CreditClosed-end fund structures with 7-10 year lives allow lenders to hold rescue capital through a full turnaround cycle of 2-4 years without liquidity pressure. No forced selling or mark-to-market triggers.
Bank LendingBank capital is subject to quarterly provisioning, regulatory stress testing, and shareholder scrutiny. Distressed exposures attract punitive capital charges and impairment provisions that create pressure to exit quickly.

Who Provides Rescue and Turnaround Financing Through Private Credit?

Rescue and turnaround financing is a specialist segment of the private credit market, served by lenders with specific mandates, expertise, and capital structures designed for distressed situations. The provider landscape differs significantly from the performing direct lending market.

Dedicated Distressed and Special Situations Funds - The primary providers of rescue capital are funds established specifically to deploy capital into distressed situations. These vehicles raise capital from institutional investors with explicit mandates to invest in stressed and distressed credits, carrying return targets of 15-25% net. They maintain teams of restructuring professionals, often recruited from investment banks, law firms, and consulting firms, with deep experience navigating insolvency proceedings, intercreditor negotiations, and operational turnarounds. Fund sizes range from EUR 200M to EUR 5B+, with individual deployment capacity of EUR 10-100M per situation.

Credit Opportunity Funds - Broader credit opportunity strategies invest across the performing and non-performing credit spectrum, with flexibility to deploy capital into distressed situations when the risk-reward is attractive. These funds are more opportunistic than dedicated distressed vehicles - they may increase or decrease their allocation to turnaround situations based on market conditions. Their advantage is flexibility; their disadvantage is that distressed investing is one of several strategies competing for capital within the fund, meaning commitment speed may be slower than for dedicated distressed platforms.

Turnaround-Focused Private Equity Firms - Several private equity firms specialise in acquiring and turning around distressed businesses, and they frequently provide rescue financing as part of their investment thesis. These firms bring operational capabilities that pure credit funds typically lack - they can deploy operating partners, interim management, and industry specialists to drive the turnaround alongside their capital. When a turnaround PE firm provides rescue financing, it is often structured with significant equity participation, reflecting the firm's intention to take control if the turnaround succeeds or if the debt converts.

Family Offices with Special Situations Mandates - Some larger family offices maintain allocations to special situations and distressed investing, typically deployed through direct investments or managed accounts with specialist credit managers. Family office capital can be particularly valuable in rescue situations because it operates without the governance constraints of institutional fund structures - investment decisions can be made rapidly, terms can be bespoke, and holding periods can extend beyond typical fund lives. However, family office deployment in distressed situations is episodic rather than systematic.

Existing Lender Groups - In some restructuring scenarios, the most effective source of rescue capital is the existing lender group itself, which may agree to provide new money facilities in exchange for improved security, equity participation, and priority status. This is most common where the existing lenders have significant exposure and conclude that providing additional capital to fund a turnaround offers better recovery prospects than enforcement. Private credit funds that hold the existing debt are often better positioned to provide new money than bank lenders, because fund documentation gives them greater flexibility to increase exposure to a single name.

Deal Reference: European Retailer Turnaround

Anonymised reference based on comparable transactions seen on the market.

SectorConsumer Retail
Deal SizeEUR 35M super-senior rescue facility
LeverageNot meaningful on a trailing EBITDA basis given the company's loss-making position. Facility sized at 0.4x trailing revenue and approximately 60% of liquidation value of tangible assets, providing the lender with significant asset coverage in a downside scenario.
Tenor30 months with extension option for 12 months subject to turnaround milestones being met. Prepayment at 103/102/101 over the first three years.
StructureSuper-senior secured term loan ranking ahead of EUR 80M of existing senior secured bank debt. First-priority lien on all assets including real estate, inventory, receivables, and IP. Funded in two tranches: EUR 20M immediate drawdown for liquidity stabilisation and supplier confidence, and EUR 15M delayed draw available upon achievement of agreed turnaround milestones (store closure programme completion, new management team in place, revised supplier terms agreed). EURIBOR + 1,000 bps cash pay plus 3% PIK. Arrangement fee of 3.5%. Warrant coverage of 12% of equity post-restructuring. Weekly cash flow reporting with daily bank balance visibility. Board observer seat for the rescue lender.
OutcomeThe rescue facility provided immediate liquidity that prevented supplier withdrawal and store closures. Over the subsequent 18 months, the turnaround plan was executed: 15 underperforming stores were closed, the cost base was reduced by EUR 12M annually, the management team was replaced, and the product range was repositioned. The company returned to EBITDA breakeven within 12 months and to EUR 8M trailing EBITDA within 24 months. The rescue facility was refinanced with a EUR 45M performing private credit unitranche at EURIBOR + 625 bps. The rescue lender achieved a gross return of approximately 22% annualised through the combination of margin, PIK, fees, and the exercise of its warrants at 3x the strike price.

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Frequently Asked Questions

Common questions about this transaction structure

Rescue financing through private credit is urgent debt capital provided by specialist lenders to businesses experiencing financial distress or liquidity crises. The capital is typically structured as super-senior secured debt, ranking ahead of all existing creditors, and is designed to provide immediate liquidity to stabilise operations while a turnaround plan is developed and executed. Rescue lenders are specialist distressed and special situations funds with dedicated restructuring teams, not the performing direct lending funds that provide standard acquisition or growth capital. Terms reflect the elevated risk profile: margins of EURIBOR + 800-1200 bps, arrangement fees of 2.5-5.0%, and equity participation of 5-20%.
Rescue financing can be arranged in 2-4 weeks for urgent situations, and sometimes faster where the distressed lender has existing familiarity with the sector or has been monitoring the situation. The speed is possible because specialist distressed funds maintain dedicated teams with delegated authority to approve investments without full committee processes, and because diligence in distressed situations is necessarily abbreviated - the lender is underwriting asset coverage and turnaround viability rather than conducting the comprehensive financial analysis typical of performing credit. That said, complex intercreditor negotiations with existing lenders can extend timelines, particularly where existing creditors are resistant to a new super-senior facility that primes their position.
Rescue financing is the initial, urgent capital injection designed to prevent immediate business failure - it addresses the acute liquidity crisis and buys time for a restructuring plan to be developed. Turnaround financing is the longer-term capital that funds the operational transformation: redundancy programmes, facility closures, management changes, strategic repositioning, and working capital during the transition. In practice, these are often provided by the same lender, with the rescue facility structured as a bridge that is either repaid or rolled into a larger turnaround facility once the initial crisis is stabilised and the restructuring plan is agreed. The terms of the turnaround facility are typically better than the rescue facility, reflecting the reduced risk as the situation stabilises.
Specialist distressed and special situations funds typically target gross returns of 15-25% on rescue and turnaround investments. This return is generated through a combination of high cash margins (EURIBOR/SONIA + 800-1200 bps), PIK interest that capitalises and compounds, substantial arrangement and commitment fees (2.5-5.0%), call protection premiums on early repayment, and equity participation through warrants or conversion rights that can generate significant upside in a successful turnaround. The returns compensate for genuine loss risk - not all turnarounds succeed, and losses on failed situations can be material. Net of losses across a portfolio, fund-level returns for specialist distressed strategies typically run at 10-18% net to investors.
The introduction of rescue financing requires negotiation with existing creditors, who are asked to accept that new money will rank ahead of their claims (super-senior status). In a consensual scenario, existing creditors agree because the rescue capital improves their overall recovery - without it, the business may fail entirely, leaving them with liquidation proceeds that may be lower than their current exposure. In a contested scenario, formal restructuring tools such as UK Restructuring Plans, schemes of arrangement, or administration processes can be used to impose the new money structure on dissenting creditors, provided the statutory requirements are met. The intercreditor negotiation is often the most complex element of rescue financing, requiring experienced restructuring counsel and a pragmatic approach from all parties.
Rescue financing frequently involves significant equity dilution for existing shareholders through the warrant coverage and conversion rights granted to the rescue lender. In extreme cases, the restructuring may involve a debt-for-equity swap where existing creditors convert their claims into equity, effectively wiping out or severely diluting the existing shareholder base. The extent of dilution depends on the severity of the distress, the quantum of new money required, and the negotiating leverage of each party. For PE-backed businesses, sponsors must weigh the dilution against the alternative - complete loss of their equity investment if the business fails. In most cases, retaining a diluted stake in a restructured, recovering business is preferable to a total write-off.

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