Surviving Lender-on-Lender Priming Tactics

For years, the rise of private credit was framed as a story of substitution: banks stepped back, and private lenders stepped in. But in 2026, the narrative changed. It is all about confrontation.

As Basel III “Endgame” rules continue to pressure bank balance sheets, traditional lenders are retreating even further from complex, capital-intensive restructurings. Private credit stepped into the vacuum. It is no longer just the alternative source of capital. Is is where restructuring battles are fought. And increasingly, those battles are not borrower versus lender. They are lender versus lender.

Welcome to the era of priming tactics.

In today’s market, survival depends less on documentation alone and more on strategic positioning. If you are not actively shaping the restructuring, you risk being structurally subordinated by it.

1. The Great Retreat: How Banks Created the Battlefield

The withdrawal of G-SIBs (Global Systemically Important Banks) from mid-market and distressed exposure has transformed private credit from a complementary player into the dominant force in workouts. What once required court supervision is now unfolded inside credit committees and intercreditor negotiations.

According to a S&P Global Market Intelligence report, private credit has grown to exceed $1.7 trillion globally, with nine of the top 20 firms being major private equity players. (S&P Global Market Intelligence, November 6, 2025)

In 2026, distressed companies do not first call restructuring counsel or bankruptcy advisors. They call their private lenders.

This shift has created unprecedented power concentration. But power attracts competition. With billions in dry powder chasing stressed situations, restructurings have become zero-sum games among lenders themselves.

The result: whoever controls the rescue capital controls the capital structure.

2. The Mechanics of Being “Primed”

“Lender-on-lender violence” isn’t rare anymore—it’s become a standard part of today’s restructuring playbook. The most common weapons are now well known:

• Uptiering
  Uptier Priming Debt is new, super-priority debt created when a distressed company works with a majority of its lenders to swap their existing first- or second-lien loans for higher-ranking debt. The lenders agree to this swap in exchange for releasing covenants that protected their original loans. Importantly, the offer is not extended to all creditors—only to those who vote with the debtor to reach the required majority—effectively giving some lenders priority over others. (AIMA, Nov. 18, 2024)
• Drop-Down Transactions
  A dropdown occurs when a borrower moves valuable collateral—often intellectual property—from a restricted subsidiary under the existing loan agreement to an unrestricted subsidiary outside the original lender relationship. This “liberates” the collateral, allowing it to secure new debt while leaving the original lenders without protection on those assets. Economically, the same effect can sometimes be achieved simply by reclassifying a restricted subsidiary as unrestricted, as permitted under the loan agreement. (Quinn Emanuel, Jan. 15, 2025)

These aren’t just minor details—they can determine whether a lender keeps their place or loses it.
Getting “primed” doesn’t just reduce your returns. It can leave you powerless and sidelined.

Survival now depends on early positioning, coalition building, and negotiation leverage long before documents are tested in court.

3. Shadow Distress in Private Credit

Headline private credit default rates remain deceptively low, around 2%, but the picture is misleading.

The rise in the use of Payment-in-Kind (PIK) is a sign of growing stress in private credit markets. PIK is where interest isn’t paid in cash but added to the loan principal. Once mostly limited to mezzanine or subordinated debt, PIK is now appearing in senior loans, with Business Development Companies (BDCs) receiving around 8% of investment income this way. (S&P Global, Jan. 7, 2026)

Combined with maturity extensions, amend-and-extend agreements, and coercive LMEs, these mechanisms mask true distress, pushing the real stress rate closer to 5%. Today’s restructurings often happen quietly, through capital structure engineering rather than formal insolvency, which makes priming tactics especially dangerous, striking before stress is publicly visible.

4. The New Survival Strategy: Bespoke Rescue Capital

The lenders succeeding in 2026 aren’t just insisting on being first in line—they’re shaping how the deals play out.

As of December 16, 2025, private credit funds raised $224.25 billion globally, up 3.2% from 2024’s $217.38 billion, according to With Intelligence, part of S&P Global Market Intelligence—a slower growth compared with the 9.7% increase seen in 2024.

“Bespoke rescue financing” blends:

• Senior secured debt
• Convertible or equity-linked instruments
• Control rights and operational influence

According to Morgan Stanley’s article “Private Credit: 2026 Outlook”, their 2026 strategy combines scale, selectivity, and structural innovation. In direct lending, they are focusing on senior secured loans to high-quality, sponsor-backed middle-market companies, with a preference for defensive, non-cyclical sectors such as software and business services.

These hybrid structures allow lenders to:

• Inject capital at the moment of maximum leverage
• Control restructuring terms
• Participate in upside recovery
• Neutralize competing creditor blocs

This is not traditional lending. It is structured dominance.

In a lender-on-lender market, rescue capital is no longer about saving companies but more about reshaping ownership and power map.

The Bottom Line

In 2026, lien position is no longer protection. Participation is.

If you are not involved in Liability Management Exercises (LMEs), you are exposed to it.
If you are not shaping the transaction, you are being reshaped by it.

Surviving lender-on-lender priming tactics requires:

• Early situational awareness
• Coalition strategy
• Documentation foresight
• Rescue capital sophistication
• Negotiation leverage

This is no longer a legal exercise. It is competitive strategy.

Why This Matters for the 2026 Distressed Investing Summit

These dynamics are no longer theoretical. They are playing out in real transactions across private credit, special situations, and distressed M&A.

At The M&A Advisors’ 2026 Distressed Investing Summit, industry leaders will break down:

• How priming transactions are structured
• How minority lenders can defend themselves
• When to litigate and when to negotiate
• How rescue capital is being engineered
• Where value is shifting inside capital structures

Because in 2026, survival belongs to those who understand the game early—and play it better than everyone else.

Stay ahead of the curve—and spot the deals others miss. Reserve your seat at the 2026 Distressed Investing Summit, happening on March 23^rd and 24^th in Palm Beach, Florida where the best of the best in Restructuring and Distressed Investing converge. REGISTER NOW.

REFERENCE LIST:

 Private Credit Dominance & Banks Retreat

S&P Global. “S&P Global Market Intelligence Report Reveals Private Credit’s Disruption and Impact on Credit Quality in the Banking Landscape.” S&P Global Market Intelligence, Nov. 6, 2025. S&P Global Market Intelligence Report Reveals Private Credit’s Disruption and Impact on Credit Quality in the Banking Landscape | S&P Global

Lender-on-Lender Activity & Shadow Distress (LMEs & PIK)

AIMA. “Lender on lender violence: The meaning of Uptier Priming Debt.” By James Grand; Ben Jones; Hannah Ward, Simmons & Simmons, Nov. 18, 2024. https://www.aima.org/article/lender-on-lender-violence-the-meaning-of-uptier-priming-debt.html?utm_source=chatgpt.com

Quinn Emanuel. “Lead Article: Liability Management Exercises: What They Are and What They Mean for Market Participants.” Quinn Emanuel, Jan. 15, 2025. https://www.quinnemanuel.com/the-firm/publications/lead-article-liability-management-exercises-what-they-are-and-what-they-mean-for-market-participants/?utm_source=chatgpt.com

Hidden Distress & “True” Default Rate Trends

S&P Global. “All Eyes on Europe as Cracks Emerge in Private Credit.” S&P Global, Jan. 7, 2026) All Eyes on Europe as Cracks Emerge in Private Credit | S&P Global

Hybrid & Bespoke Capital Solutions

S&P Global. “Global private credit fundraising increased in 2025.” S&P Global Market Intelligence, Jan. 7, 2026. Global private credit fundraising increased in 2025 | S&P Global Morgan Stanley. “Private Credit 2026 Outlook.” Morgan Stanley, Dec. 16, 2025. Alts In Focus: 2026 Outlook | Private Credit | Morgan Stanley | Morgan Stanley