Distressed Debt Funds in Europe: Who Invests and How They Work

Distressed debt funds buy loans, bonds and other claims on borrowers in financial difficulty, usually at a discount to face value. They aim to profit through recovery, restructuring or, in some cases, by taking control of the business. In Europe, these investors are also among the main buyers of non-performing loan (NPL) portfolios sold by banks. This guide explains how distressed debt funds work, how they source and resolve investments, and which firms are active in the European market.

What is a distressed debt fund?

A distressed debt fund invests in the debt of companies or individuals that have defaulted, are close to default or are going through a restructuring. Typical investments include:

• Corporate debt of companies in or near restructuring, bought in the secondary market or provided as rescue financing.
• NPL portfolios bought from banks, often secured on real estate.
• Single-name loans and real estate loans with specific collateral or legal issues.
• Re-performing loans, which were previously non-performing and are now being repaid again.

Many firms no longer use the word “distressed” for these strategies. They describe them as opportunistic credit, special situations or event-driven investing.

Firms active in European distressed debt and NPLs

The firms below describe distressed, opportunistic or NPL strategies on their own websites. They are listed alphabetically. This is not a ranking, and it is not a complete list of the market.

We have not listed assets under management. Firms report them on different bases, often for the whole firm rather than for European distressed debt, and the figures change every quarter. For current figures, use each firm’s latest published reports.

How distressed debt funds source opportunities

• Bank portfolio sales. Banks sell NPL portfolios through competitive processes, often run by advisers, to reduce non-performing exposures and free up capital. See NPL sales.
• Bilateral relationships. Repeat sellers may agree smaller or off-market sales with buyers they have worked with before.
• Secondary market trading in loans and bonds of companies under pressure.
• Restructurings and insolvency processes, where funds may provide new money or buy claims from existing lenders.
• Servicing platforms. Some investors own or partner with loan servicers, which gives them local market knowledge and earlier sight of potential sales.

For a framework on assessing deals, see the NPL investor’s playbook.

Common strategies

• Loan-to-own. Buying debt with the aim of converting it into equity through a restructuring, then improving and selling the business.
• Portfolio workout. Splitting a purchased NPL portfolio into segments and applying different resolution routes. These include negotiated settlements, restructuring, collateral sales and onward sales of parts of the portfolio. See NPL workouts.
• Real estate-led recovery. Taking control of, repositioning or selling property that secures defaulted loans.
• Rescue and capital solutions. Providing new financing to companies that cannot raise it from banks, usually on senior or structurally protected terms.

How to evaluate a distressed debt manager

Investors assessing distressed debt managers usually look at:

• Track record across a full credit cycle, including realised rather than only unrealised returns.
• Local presence and servicing capability in the markets where the loans sit, since enforcement and settlement are local.
• Legal and restructuring expertise, given differences in insolvency regimes across Europe.
• Valuation policy for illiquid loans and how it is overseen.
• Alignment of interests, including fee structure and the manager’s own investment in the fund.

For broader checks, see private credit due diligence.

What drives supply in Europe

Supply of distressed debt and NPLs depends on the credit cycle, interest rates and bank regulation. EU rules push banks to deal with problem loans rather than hold them indefinitely. These include minimum loss coverage for newer non-performing loans and the EBA requirement for banks with high NPL ratios to adopt reduction strategies. Since 30 December 2023, the EU Credit Servicers and Credit Purchasers Directive has also set common rules for those who buy and service bank NPLs. Our guide to non-performing loans covers these rules, and the NPL ratio guide shows current European data.

Frequently asked questions

What are the largest distressed debt funds? There is no single public ranking. Firms report assets on different bases, and many fold distressed investing into wider credit or opportunistic strategies. Check each manager’s own published reports for current figures.

How do distressed debt funds make money? By buying debt below face value and recovering more than they paid, through repayment, restructuring, collateral sales or by converting debt into equity.

Is distressed debt the same as NPL investing? They overlap. NPL investing usually means buying portfolios of defaulted bank loans, while distressed debt also covers corporate bonds, loans and rescue financing.

Meet the investors, servicers and banks active in European distressed debt and NPL markets at Private Credit Days Europe, 18–19 November 2026, London. See who is attending.

Sources

1. Firm descriptions: each firm’s own website, as linked in the table (read 26 October 2026).
2. Directive (EU) 2021/2167 on credit servicers and credit purchasers
3. Regulation (EU) 2019/630 (NPL prudential backstop)
4. European Banking Authority, Guidelines on management of non-performing and forborne exposures (EBA/GL/2018/06)