Credit Analysis Year in Review: 2025 Marked by Several Large Refinancings, However Risks Continue Into 2026; Octus Expands Sector, Loan and Private Filer Coverage

 

 

While less busy than 2024, 2025 was still an active year for LMEs with several larger companies pursuing transactions, including Ardagh Group’s equitization, Optimum Communications’, fka Altice USA, drop-down transaction and Sabre’s second pari-plus transaction. Octus covered numerous completed transactions while also contemplating how distressed companies might leverage their loan documents to extend their turnaround runway.

Early in the year, Octus analyzed drop-down transactions with an eye toward the changes in leverage ratios wrought by these deals, while we also looked at nontraditional securitizations, which have increasingly become an avenue for companies to tap the capital markets.
 

Continuing a theme from 2024, 2025 was a very busy year for EchoStar, with the company announcing a $23 billion spectrum deal with AT&T in late August, followed in short order by a spectrum sale to SpaceX announced in early September totaling $22 billion, with both transactions driven by the company’s disputes with the FCC. Over the summer, Octus had estimated that EchoStar’s spectrum holdings could be worth $48 billion. Exiting 2025, the company’s equity price surged as SpaceX completed a secondary offering at an approximately $800 billion valuation, up from the $400 billion figure used in the spectrum transaction under which it is set to receive approximately 2.8% of SpaceX, leaving it levered to SpaceX’s valuation, with SpaceX having discussed a possible IPO in 2026.

QVC enters 2026 in an interesting position after it borrowed an additional $975 million on its RCF in August, just 14 months before it matures. This occurred at the same time the company is struggling to manage the impact of tariffs and volume declines, while we believe the company may be somewhat circumscribed in its flexibility. In addition to the upcoming RCF maturity, investors should also take heed that there could be a hefty tax liability coming due.

New Fortress Energy enters 2026 on much weaker footing than at the start of 2025 with the forbearance on its 2029 secured notes due to run out later this week, on Jan. 9. While the company closed out the year with a new seven-year contract to supply LNG to PREPA in hand, the company continues to struggle with its cash generative capability and concerns about the various parts of its business.

Not all was bad during the year as several companies were able to take advantage of the capital markets to help refinance their capital structures. This includes Bausch Health which recently completed a $1.6 billion exchange offer, cutting 2028 maturities by about $1.7 billion through utilizing its subsidiary that holds the majority of its Bausch + Lomb shares. The company initially utilized this subsidiary in its March refinancing that raised almost $8 billion.

In the first part of the year, Sabre launched a refinancing transaction that utilized the issuance of new senior secured notes to pay off $900 million borrowed under its pari-plus term loan. Alas, the relief Sabre’s other creditors felt at this must have been short-lived as the company tapped the capital markets again in late November, raising $1 billion in new pari-plus debt as part of a comprehensive refinancing addressing the company’s maturity profile.

In July, we had word that First Brands was struggling with a $6 billion refinancing, with the company ultimately filing for bankruptcy at the end of September following several months of market volatility. The company raised $1.1 billion in new money under a DIP with ad hoc group members receiving preferred economics. However, this is likely to not prove enough as we enter 2026 with concern in the market the company may need additional capital.

Last year we also had a number of pieces that looked at broader trends within the market or specific sectors, including a look at the mechanics of airline loyalty programs, a deep dive on the players in the direct-to-device market, an analysis of historical transactions in broadband, a discussion of the impact to the renewables industry from the One Big Beautiful Bill Act and, most recently, an examination of recent transactions within the broadcast television industry.
 

In 2025, Octus expanded its financial coverage of private filers and loan-only issuers, delivering in-depth analysis of companies facing acute liquidity pressure or approaching maturity walls.

Examples include Sensience, which continues to face significant financial pressure following its 2022 leveraged buyout by One Rock Capital Partners. While the company has seen modest end-market demand stabilization and margin improvement through fiscal year 2024, liquidity remains strained amid ongoing cash burn driven by high interest costs, residual carve-out expenses and working capital pressure. Exposure to cyclical HVAC and appliance markets further constrains cash flow recovery, and the sponsor’s willingness to provide additional equity support appears uncertain given limited residual value. Octus sees an elevated near-term liquidity risk, with liquidity of approximately $12.3 million as of Sept. 30 and a projected sizable net cash outflow in FY 2026.

We expect Fortna Group to rely on RCF borrowings to fund ongoing cash burn in 2026 while facing elevated refinancing risk related to RCF’s 2027 maturity. The structural operational weakness limits the company’s ability to reverse negative cash generation despite a gradual recovery in bookings and EBITDA. Continuous margin compression from a shift toward lower-margin parcel projects, and the back-end-weighted, working-capital-intensive nature of long-duration contracts have driven sustained cash burn. Combined with high interest expense and limited additional debt capacity permitted by credit agreement, these pressures heighten near-term liquidity risk and may necessitate a comprehensive restructuring solution.

Brightline has materially underperformed issuance expectations with huge liquidity needs to fund planned fleet expansion. The creditors of the $1.1 billion high-yield bonds issued at Brightline East LLC (parentco) are preparing a restructuring aimed at elevating their claims through new financing and concessions, as reported in December 2025. Ahead of this, Octus assessed the risks across parentco, holdco, and topco debt, which is structurally subordinated to opco bonds, supported by weak security, and dependent on limited upstream cash flow from the sole revenue-generating opco. The ongoing FECR litigation further limits the opco growth plan.

Octus has observed a notable volume of distressed exchange transactions among private companies in 2025, such as Cubic Corp., Brook + Whittle, FXI Holdings and Fortrex, for which we provide detailed transaction analysis alongside business and operational overviews.

Octus analyzed trends across subsectors with significant concentrations of loan only issuers such as building product and home furnishing companies. Weak new and existing home sales activity, combined with limited remodeling activity, has led to persistently weak demand for building products and home furnishing products with weakening consumer spending resulting in a mix shift to lower-end products throughout the home. Distributors such as US LBM Holdings, Primesource and Specialty Building Products that focus more on remodeling activities and new home construction subject to trade-down effects have tended to experience greater volatility in financials, security pricing or both. Additionally, a number of home furnishing- and interior-focused companies have been forced to restructure in court or sought LMEs to raise liquidity and in some cases extend maturities. In addition to FXI Holdings, RugsUSA, Empire Today and Springs Window Fashions all conducted LMEs but still face uncertain futures.
 

In 2025, the Octus team continued to build out sector coverage across the sub-investment grade universe and below we highlight six sectors where volatility was prevalent in 2025 and uncertainty may persist into 2026. Last year, tariff implementation and shifting regulatory policies dominated the high-yield landscape, driving cost volatility across industrial and consumer sectors. Notably, a “K-shaped” economic divergence emerged over the course of the year, where resilient high-end spending supported luxury retail and regional gaming assets while lower-income cohorts and industrial end markets faced significant headwinds. Consequently, sectors like chemicals and automotive faced margin pressure and broad credit downgrades, despite efforts to pass through rising input costs.

Aluminum and Packaging

Aluminum and steel tariffs of 25%, implemented in March, were increased to 50% in June. Domestic aluminum pricing subsequently increased to an all-time high of about $4,500 per metric ton from about $3,000 at the beginning of the year. As discussed in our latest aluminum rolled products quarterly, the direct impact on the main high-yield aluminum rolled product credits (Novelis, Constellium and Kaiser Aluminum) has been minimal to date, with higher primary aluminum costs largely able to be contractually passed through to customers, while the use of lower-cost scrap aluminum provides incremental margin opportunity. Novelis, however, outlined cash flow pressures resulting from cost overruns at its Bay Minette project and recent fires at its Oswego plant, with Novelis’ parent company, Hindalco, injecting $750 million of additional equity that Novelis said it believes will prevent its leverage from going significantly above 4x.

The primary aluminum can producers (Ball, Crown and Ardagh Metal Packaging) have similarly been successful to date in pushing higher aluminum costs further down the supply chain without a significant negative impact on shipment volumes, as discussed in our latest packaging quarterly. However, Ardagh Metal Packaging said there could be a “bit more risk” to its shipment volumes, with its 2026 shipment guidance reflecting that caution, and Crown said it would “remain attentive” to indirect tariff impacts on its shipment volumes. Ball, however, said it is now “more encouraged” that any tariff impact will remain manageable. For a more general discussion of tariff impacts, see our April webinar on potential post-Liberation Day tariff impacts.

Glass bottle producers OI Glass and Ardagh Group would potentially benefit from higher aluminum costs, with O-I Glass saying that the cost premium of glass over aluminum has now compressed to its historical level of about 15% and that it believes glass can be competitive with aluminum, potentially slowing the ongoing shift to aluminum cans from glass bottles. Against these sector dynamics, Ardagh Group completed its restructuring, saying it expects restricted group leverage to end the year at 5.4x, down from 8.2x pre-restructuring.

Automotive

The automotive sector dealt with a series of obstacles in 2025, headlined by the Trump administration’s tariff policy, which has evolved significantly for autos since the beginning of the year. We published a global auto sector report on March 27, one day after President Donald Trump signed an executive order imposing 25% tariffs on imports of foreign-made cars, discussing exposures at major original equipment manufacturers, or OEMs, and auto parts suppliers, our expected impacts on each subsector within the auto sector and on individual credits, and potential mitigation measures across the sector.

We continued to follow the impact of automotive tariffs throughout the year, with our July global auto sector report discussing how the outlook for automotive companies had evolved as USMCA-compliant exemptions and favorable policy revisions were introduced and our October global auto sector report discussing the first major fallouts from a higher tariff environment in the automotive sector, as parts supplier First Brands filed for chapter 11 and auto dealership and subprime lending company Tricolor filed for chapter 7 bankruptcy in September. We covered First Brands and Tricolor extensively through the end of the year, and we discussed First Brands at depth in our Oct. 8 webinar.

Among automotive credits, Ford remained topical throughout the year as it maintained its investment-grade rating by S&P Global Ratings despite receiving a negative outlook revision in February, causing its bonds to trade at around BB levels for most of the year. We published a report in August discussing potential tailwinds for the company that could allow it to avoid a downgrade to sub-investment grade, including improvements in warranty expenses and favorable regulatory actions that would allow it to shift its mix away from unprofitable electric vehicles toward more high-margin gas-powered and hybrid vehicles.

Most recently, we discussed key themes from third-quarter earnings for the auto dealerships, OEMs and parts suppliers. Notably, dealer margins were pressured during the quarter as buyers rushed to buy EVs, which are generally lower margin, ahead of the termination of the federal EV tax credit on Sept. 30. OEMs and suppliers reported that EV sales significantly dropped off following the termination of the tax credit, signaling that most constituents will be adjusting capacities to cater toward a higher mix of non-EVs. OEMs reported their most significant quarterly tariff costs thus far while suppliers mostly focused on cost-cutting and productivity improvements to offset potential demand impacts from the evolving tariff landscape.

Chemicals

The commodity chemical sector faced increasing pressure from continued weak construction and industrial end markets, with the lack of a normal seasonal midyear demand increase, as discussed more fully in our latest Chemicals Quarterly. Several large chemical companies were downgraded to below investment grade, including both Celanese and Huntsman, with Octus continuing to favor Celanese bonds at essentially equivalent spread levels.

Chemical sector pressure was most pronounced for the titanium dioxide, or TiO2, producers, as outlined in our in-depth TiO2 sector report, with Tronox issuing a senior secured bond issue in September to bolster its liquidity while also disclosing in December that it has obtained nonbinding financing commitments to exploit its rare earths potential.

Within the more-defensive specialty chemical sector, the major news was the November merger announcement of Axalta and AkzoNobel, which is likely to result in an upgrade to investment grade for Axalta, which Octus had previously highlighted as the most likely of the high-yield specialty chemical credits to eventually be upgraded to investment grade.

Casinos and Sports Betting

The oft-discussed “K-shaped recovery” was illustrated early in the year when casino operators reported varying trends between the upper and middle ends of their respective databases in which visitation and spend per visit trends were healthy and the lower portion was exhibiting weakness. Regional operators such as Caesars, Churchill Downs and Penn Entertainment cited increased competition in light of new supply in Illinois, Indiana, Louisiana and Nebraska.

For the Las Vegas Strip, 2023 was a great year. Visitor volumes were up 5.2% year over year, hotel rooms rates were 12.3% higher, and revenue per room was up 18.6%. Through 2024, growth continued, albeit at a slower pace. Visitation volume was up 2.1%, and Las Vegas Strip revenue per room was up 1.1%.

January 2025 visitation volumes were down 1.1%, however. February was also lower, but the Super Bowl was in Las Vegas during February of 2024. In March, visitor volumes were down 7.8%, and although Las Vegas Strip room rates were up 3.9%, the revenue per available room was up just 1%. Year-over-year visitation declines in April and May did not bode well for the summer.

Earnings results and commentary from the second quarter of 2025 highlighted a difference in performance between casinos on the Las Vegas Strip and in downtown Las Vegas that are more dependent on destination travel and regional casinos that are more dependent on the local community around the casino for business.

Visitor volume declines accelerated into July, before the pace slowed, but visitor volumes are still down year over year.

Higher-end consumers continued to show resilience. MGM CEO William Hornbuckle said during the third-quarter 2025 earnings call that its high-end casino and resort properties Bellagio, ARIA and Cosmopolitan continue to maintain their average daily rates.

On the opposite side of the spectrum, assets such as Luxor and Excalibur struggled over the summer as a result of trends such as less visitation from Canada and/or Southern California.

Caesars Las Vegas’ LTM EBITDAR was down 8% year over year; MGM’s fell 10%. However, Wynn, which operates one of the best hotels in the world, according to Conde Nast, and caters to high-end consumers, saw EBITDAR decline 2% year over year.

Healthcare (Care Providers)

At the beginning of 2025, we said there are regulatory and policy wild cards such as the expiry of Affordable Care Act exchange subsidies and potential Medicaid funding cuts, that could easily upend stability expectations. In April, concerns about tariff risk reached an apex, with industry participants seeking to understand how hospital operators would minimize supply costs.

Care providers within the high-yield index generally had supply expenses contracted under firm pricing for 2025 and 2026. Specifically, HCA, a co-founder of group purchasing organization HealthTrust Performance Group, explained that about 70% of supply expenses were contracted under firm pricing in 2025, with 60% contracted for 2026.

Credit spreads for hospital operators widened in April, along with the broader high-yield universe. The concerns were somewhat short-lived. A spate of issuers tapped the credit markets in June and July, including Radiology Partners, TeamHealth and Community Health Systems.

July 4 marked the effective date of the One Big Beautiful Bill Act, or OBBBA, which, among other things, will impose work requirements on Medicaid recipients and restrict certain ways that states obtain financing for Medicaid.

In response to the coronavirus pandemic, Congress in 2021 passed the American Rescue Plan Act, which provided for, among other things, expanded eligibility for the premium tax credit and enhanced credit amounts. The changes were extended under the Inflation Reduction Act budget reconciliation measure for tax years 2023, 2024 and 2025. In February 2024, about 93% of marketplace enrollees, or 19.3 million, received advance premium tax credits, up 35% from 14.3 million enrollees in February 2023. The Affordable Care Act subsidies expired Dec. 31, 2025. The ripple effects from the expiry remain to be seen.

Octus hosted three healthcare related webinars during 2025:
 

• Feb. 26, 2025: Healthcare Sector Deep Dive – Revenue and Medicare Claims Management, Cost Control More Important Than Ever, Creating Winners and Losers
   
• Sept. 17, 2025: How $1T Reduction in Federal Medicaid Spending Impacts US Healthcare System
   
• Oct. 9, 2025: Navigating Healthcare Disruption: A Roundtable Discussion Identifying Opportunities and Managing Risks
   

Retail

Retail companies were surprisingly resilient throughout 2025 despite what was a challenging discretionary spending environment from the lower-end income cohorts in an increasingly bifurcated market. Strong spending from the middle and upper classes propelled the sector upward from the headline level, although higher tariffs introduced a considerable amount of uncertainty as we head into the new year.

We first discussed in our January retail and consumer sector quarterly that higher tariffs could drive companies to raise prices in order to protect margins, although doing so may potentially affect demand. As policies came to fruition and retail companies detailed their significant manufacturing exposures across mostly Southeast Asian countries, we discussed further the potential balance between price increases and demand stability in our June sector quarterly report. At the subsector level, we discussed in April how tariffs add to the list of headwinds for department stores, which have fallen out of preference for U.S. consumers, although we noted that companies with exposures to higher-end segments and off-price segments could outperform relatively.

In the second half of the year, retailers mostly outperformed against expectations with tariffs yet to materially make their way through, likely because of the continued sell-through of pre-tariff inventories, although as pointed out in our October sector quarterly, most companies remained cautious in outlooks due to uncertainties related to how consumers would begin to react to eventual price increases.

Most recently, we discussed in our recap of third-quarter apparel retail earnings that while tariffs had begun to finally make a partial impact on margins, it is not expected that retailers will see annualized levels of tariff costs until the fourth quarter ending in late January, clouding the outlook for the sector heading into 2026. Retailers described their viewpoint heading into the holiday season as “cautiously optimistic.”

A list of our quarterly sector reports from 2025 is shown below:

Q3’25

Life Sciences
Pharmaceuticals Part 1 | Part 2
U.S. Casino and Sports Gambling Part 1 | Part 2

Q2’25

Aluminum
Chemicals
Food and Beverage
Global Automotive
Healthcare
Homebuilders Part 1 | Part 2
Oil & Natural Gas Exploration & Production
Hardware & Semiconductors
Leisure
Life Sciences
Packaging
Pharmaceuticals
Retail and Consumer
Software
U.S. Casino and Sports Gambling
U.S. Consumer Finance

Q1’25
Aluminum
Casino and Sports Gambling
Chemicals
Food and Beverage
Global Automotives
Healthcare
Homebuilders Part 1 | Part 2
Leisure Part 1 | Part 2
Life Sciences
Packaging
Retail and Consumer Products
Technology Hardware
U.S. Consumer Finance