Europe is also at risk from credit cockroaches

The writer is founder of Fox Legal Training

If Jamie Dimon is right, 2026 is likely to be a year when many investors will be scurrying to parse the legal documents behind the credit they have extended to borrowers to see what protection they have, if any.

The JPMorgan chief executive warned last month that we are starting to see echoes of the era before the 2008 financial crisis, saying he was seeing “a couple people doing some dumb things” in lending. That came after his now famous warning last October that some high-profile credit blow-ups were unlikely to be isolated cases: “When you see one cockroach, there are probably more.”

Recent events show how ugly it could get for creditors in Europe — not just because so many did not insist on protective legal covenants in loan agreements, leaving them vulnerable when borrowers seek to avoid repayments or shift valuable assets away from the reach of claims.

Telecoms giant Altice has demonstrated that borrowers are willing to use more than just covenant flexibility to deal with demands to repay debts at par at maturity — they’re also using the courts. Lenders are being sued for organising to resist what has become euphemistically known as “liability management exercises” (LMEs). Such moves have potential to further reshape the credit landscape in Europe if replicated in the region.

The dynamics between borrowers and lenders have been evolving since the Great Financial Crisis. Managements and company owners used their negotiating leverage to secure more and more flexibility on covenants. And they have been taking advantage of this with LMEs that chop and change the balance sheet through legal and financial engineering, leaving lenders with less collateral. The result is that many lenders have suffered “haircuts”, or losses, forced on them rather than receiving debt back at par at maturity.

Until recently, Europe had seen fewer such arrangements and commentators chalked this up to factors such as stricter requirements on directors’ duties. But in the past two years, the European market has seen several high-profile LMEs from the likes of Altice France, France’s second-largest telecoms provider; Altice International, the international arm of the same group; Ardagh, the glass packaging giant; Victoria, a UK-based flooring manufacturer and global distributor; Selecta, a Swiss-headquartered vending machine operator; and Hunkemöller, a Dutch lingerie retailer.

Throughout 2023 to 2025, lenders struck back, wielding their own weapons of defence — namely, inserting contractual “blocker” provisions, which purport to prevent specific types of LME transactions, and striking co-operation agreements, contracts that facilitate lender co-ordination to prevent borrowers from playing them off against each other. Alongside the blocker, the so-called co-op agreements have proven to be an effective tool — perhaps too effective, in the opinion of Patrick Drahi, the billionaire owner of the Altice telecoms business.

In the wider group’s latest LME, Drahi persuaded JPMorgan — ironically given the Dimon warnings — to refinance a loan to Altice USA (Optimum Communications) to do away with its tight lender protections and release valuable assets — taking the company one step closer to addressing its $26bn debt stack. In the new loan provided by JPMorgan, Altice USA included anti-cooperation agreement language, which also applies to any lender JPMorgan might subsequently transfer the loan to.

But Drahi didn’t stop there — Altice USA then filed a lawsuit against a group of major creditors (including Apollo, Ares, BlackRock and others) in federal court in New York, claiming their cooperation agreement formed an “illegal cartel” that shut the company out of the US leveraged finance market.

A decision that co-operation agreements are anti-competitive would drastically change the game by making it much more difficult for lenders to effectively co-ordinate their efforts, making it easier to pursue an LME. A US victory could also embolden European issuers to bring the same arguments to court on this side of the pond. Even if the court decision goes against Altice, expect borrowers to attempt to deploy more anti-co-operation provisions to stymie what’s proven to be lenders’ best tool yet.

These tactics prove what I’ve concluded for some time — weaker lender protections have changed the credit markets irretrievably. There is no going back — and in what’s beginning to look like an endless game of chicken, the only winners are the ones who know how to decipher the docs — and the lawyers who drafted the looser terms in the first place.