European private credit borrowers rarely file for bankruptcy when they can't repay loans. Instead, debt-for-equity swaps have become the preferred route for handling distressed companies, according to a new Goldman Sachs report. This approach allows lenders to take ownership stakes rather than pursue bankruptcy proceedings.

Since 2017, about 150 European companies with roughly $38 billion in leveraged buyout financing have undergone credit events. The debt-for-equity route has proven far more common than traditional bankruptcy filings, fundamentally changing how credit distress plays out in the European market.

By swapping debt for equity, lenders can potentially save struggling businesses while avoiding the public spectacle of bankruptcy. This approach also keeps default statistics looking cleaner since these swaps don't register as traditional defaults. While the long-term outcomes for investors remain uncertain, the trend suggests European private credit markets have found a way to manage distress without the dramatic failures seen elsewhere.