NPCA Newsletter: Lenders Want You To Refinance, But Should You Restructure?
- NP Capital Advisors Team
- 3 days ago
- 5 min read
Newsletter article summary: Many leveraged companies are facing a refinancing crisis because their debt was sized against inflated EBITDA figures that don't reflect real cash generation, and rising rates - combined with lower margins - have made that debt much harder to carry. When this creates defaults or missed payments, lenders typically push them toward new, more expensive debt to refinance their existing debt, but this rarely serves the borrower's interests. The better path is usually to restructure directly with the existing lender, negotiating extensions and revised payment terms rather than taking on a more costly and restrictive new facility.
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NP Unfiltered Podcast🎤
Join our next podcast on the topic of this newsletter, Lenders Want You to Refinance, But Should You Restructure?, and ask questions live!
Date: March 19th, 2026
Time: 11AM PST | 2PM EST
Also, in case you missed it, take a look at our last interactive podcast: What To Do When Equity Goes Negative. NP partners Nick and Brent offer some great, practical takeaways!
Lenders Want You to Refinance, But Should You Restructure?
Over 60% of leveraged loans maturing in 2026-2028 are rated B- or worse, and the refinancing wall is a cash flow crisis hiding in plain sight. To understand how we got here, we need to look at how deals were structured, why today's environment challenges that math, and what companies facing a refinancing problem should do about it.
The EBITDA Illusion
At the heart of the leveraged loan boom was adjusted EBITDA. Lenders and sponsors worked together to build projections that included unrealized synergies, one-time cost normalizations, and hypothetical forward initiatives. Debt was sized off that adjusted number, not off what the company was actually generating.
It often worked as long as rates were low and growth could compound. But adjusted EBITDA doesn't pay interest; cash does. When rates rose and growth slowed, the gap between the number debt was sized against and the cash actually available to service it became impossible to ignore. The leverage was real, but stated EBITDA might have been illusory.
Refinancing Math
The refinancing environment has fundamentally changed the capacity of businesses to carry debt. Higher base rates mean that the same EBITDA, real or adjusted, now services far less principal. Lenders have tightened leverage tolerances, which compounds the problem for borrowers who originated at peak multiples.
The math is straightforward and damaging: a company that qualified for a 6x leverage multiple when rates were near zero may only support 4x or less today. That gap, often tens of millions of dollars, is the refinancing wall. For companies already operating near covenant thresholds, it is not a future problem. Refinancing at current market terms could cost two to three times the original coupon, and lenders have less appetite for complexity than they did two years ago.
Closing the Cash Gap
For companies facing a refinancing wall, the operating conversation has to change. The focus shifts to "how do we generate real, distributable cash?"
That requires a fundamental reorientation of priorities:
Working capital discipline: Receivables, inventory, and payables cycles are often where the most immediate cash is hiding. Tightening collections, extending terms with suppliers, and reducing inventory builds can unlock meaningful liquidity without touching the P&L.
Pricing over growth: In a cash-constrained environment, chasing volume at thin margins could erode value. Repricing existing relationships and being selective about new business might be the right trade-off.
Capex triage: Every capital expenditure should be evaluated against its impact on near-term cash. It might be wise to defer growth capex unless returns are more immediate and certain.
True margin vs. adjusted margin: Management teams should rebuild their financial picture around what the business actually earns after all recurring costs. Adjusted numbers mislead internal decision-making as much as they mislead lenders.
13-week liquidity visibility: Companies under pressure need to know where cash is going with precision. A rolling 13-week cash flow forecast is the operating instrument of choice for navigating tight windows.
Restructure, Don't Refinance
When a company hits a covenant default or misses a payment, the lender's typical response is to push the borrower toward refinancing, replacing the existing debt with new, more expensive debt. This is rarely in the borrower's interest. The new debt will often carry a higher rate, worse terms, and greater covenant restrictions. The company could end up more constrained, not less; the lender gets paid off and exits cleanly, but the borrower is left holding a more expensive problem.
The better path is often restructuring with the existing debt holder. As NP Capital founder Nick Desai puts it, “It's rarely better to take on more expensive and more egregious debt to pay off existing debt. Instead, you want to restructure with the existing debt holder.”
It is almost always preferable to negotiate an extension, a payment reduction, or revised covenants with your current lender than to take on new debt at punitive terms.
What that looks like in practice:
Case Study 1: NP Capital worked with a $35M beverage company facing simultaneous covenant defaults and a cash flow crisis. Their lender's position was firm: pay off the line immediately and replace it with new external debt. Rather than accept the lender's terms, we restructured directly with the existing debt holder. Weekly debt service payments were cut by more than half, and the total loan maturity was extended by several months, creating the operating runway needed to stabilize the business.
Case Study 2: A $25M protein snack company carried $7M in second lien debt, was missing payments, and was in covenant default. The lender suggested that they take on new, more expensive debt to retire the existing facility. NP Capital negotiated directly with the existing lender and extended the debt maturity indefinitely while restructuring the payment terms, keeping the company out of a more expensive and damaging refinancing.
The takeaway from both cases is that it is seldom in the borrower's interest to take on more expensive and onerous debt to pay off an existing facility. Lenders want to be made whole and exit. Your interest is to stay solvent, maintain optionality, and preserve the value of the business. Those are different goals, and you need someone in the room who is working toward yours. That’s where we at NP Capital can help.
NP Capital Advisors specializes in working directly with companies facing refinancing walls, covenant pressure, and cash flow crises. We negotiate with existing lenders to extend, restructure, and stabilize, preserving business value and protecting the interests of operators and owners. If your company is approaching a maturity event or facing lender pressure, we'd welcome a conversation.
Deal Highlights
NP Capital is advising an innovative oral care brand on a strategic sale process. The engagement aligns with the brand’s mission to provide comfortable teeth whitening experiences through innovative science, enabling users to achieve healthy, glowing smiles without discomfort.
About NP Capital Advisors
NP Capital Advisors is a next-generation investment bank and consulting firm founded by a team of experienced entrepreneurs, bankers, and attorneys who have built, operated, and sold successful businesses. The firm offers tailored solutions across M&A, restructuring and turnarounds, and strategy and growth consulting in a variety of sectors. With a performance-driven fee structure and a track record of delivering exceptional results, NP Capital Advisors is dedicated to helping founder-led and emerging growth businesses maximize value and overcome challenges.
This newsletter is for informational purposes only and does not constitute financial, legal, or investment advice.
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