Golub Capital's Opportunistic Credit Playbook for 2025-2026

As private credit enters what many observers are calling a period of reckoning, Golub Capital—one of the industry's largest middle-market lenders with over $70 billion in assets under management—is doubling down on opportunistic credit strategies. In a wide-ranging conversation with Evercore's Private Funds Group, Greg Cashman, Managing Director at Golub Capital, outlined how his firm is positioning itself to capitalize on market dislocations while navigating the complex dynamics between sponsors, borrowers, and lenders.

The conversation comes at a critical inflection point. Default rates in private credit are creeping upward, covenant-lite structures that dominated the 2020-2022 vintage are being stress-tested, and the traditional playbook for workout situations is being rewritten as sponsors fight to preserve equity value in portfolio companies.

Cashman's thesis rests on a simple observation: the rapid expansion of private credit over the past five years has created a substantial pool of underperforming loans that will require creative solutions. While many firms have marketed "opportunistic" or "special situations" strategies, Golub's approach focuses specifically on the middle-market segment where they've built three decades of origination relationships and operational expertise.

This distinction matters. Rather than buying deeply discounted paper in secondary markets, Golub's opportunistic strategy emphasizes providing rescue financing, refinancing overleveraged capital structures, and stepping into sponsor-backed situations where the existing lender syndicate has reached its capacity or mandate limitations. The firm targets situations where it can achieve 12-18% IRRs—a meaningful premium to traditional direct lending returns of 9-11%, but with what Cashman describes as "fundamentally sound underlying businesses."

One of the most revealing aspects of Cashman's commentary centers on the increasingly fraught relationship between private equity sponsors and their lenders. In previous cycles, sponsors typically had strong incentives to support portfolio companies through difficult periods—both to preserve their reputations and because they maintained meaningful equity value worth protecting.

Today's environment is different in three critical ways:

"We're seeing situations where sponsors are making cold, hard calculations about whether to continue supporting a portfolio company," Cashman noted. "If they're out of the money and the fund is in harvest mode, the incentive structure has completely changed." This creates opportunities for lenders like Golub to step in with capital, often in exchange for enhanced protections, equity kickers, or even control positions.

Golub's focus on companies with $10-100 million in EBITDA—what it defines as the "core middle market"—reflects a deliberate strategic choice. Unlike the broadly syndicated loan market or upper-middle-market private credit deals that might involve 10-15 lenders, Golub's typical deal involves 1-3 lenders with deep operational involvement and bilateral relationships with sponsors.

This positioning creates several advantages in opportunistic situations. First, deal execution is faster and requires less complex intercreditor negotiations. Second, Golub can leverage its existing relationships with both sponsors and management teams to gain early visibility into stressed situations. Third, the firm can deploy meaningful check sizes ($50-200 million) that move the needle for middle-market companies while remaining below the threshold where multiple institutional investors need to participate.

Cashman pointed to several recent examples where Golub provided rescue financing to businesses experiencing temporary disruptions. In one case, a software company facing a customer concentration issue that spooked its existing unitranche lender received a $75 million facility from Golub at SOFR + 850 basis points with a 5% equity warrant. The company successfully diversified its customer base over 18 months, refinanced at more attractive terms, and Golub earned a 16% IRR including warrant value.

Cashman's outlook for the next 18-24 months reflects a nuanced view of market conditions. On one hand, he expects default rates to continue rising from current levels of approximately 1.5-2.0% toward 3.5-4.5%—still well below the 8-10% peaks seen in previous recessions, but meaningful enough to create deployment opportunities.

Several factors are driving this expectation:

Interest Rate Environment: While the Federal Reserve has begun cutting rates, SOFR remains elevated compared to the near-zero rate environment when many current loans were originated. Companies that underwrote deals assuming 3-4% base rates are now servicing debt at 8-9% all-in rates, creating significant cash flow pressure.

Maturity Wall: According to PitchBook data, approximately $250 billion in middle-market private credit loans will mature in 2025-2026. Companies that can't demonstrate adequate performance or growth will face difficult refinancing conversations.

Covenant-Lite Structures: The prevalence of covenant-lite or covenant-loose structures in 2021-2022 vintage loans means many lenders have limited early-warning systems. When these loans do trip covenants or payment defaults, the situations often require immediate, substantial intervention rather than gradual amendments.

Despite the growing opportunity set, Cashman emphasized that Golub maintains rigorous underwriting standards for its opportunistic strategy. The firm is currently evaluating approximately 40-50 situations quarterly but closing only 6-8 transactions annually—a closure rate of roughly 15%.

This selectivity reflects lessons learned from previous cycles. Cashman recalled Golub's experience during the 2008-2009 financial crisis, when the firm deployed capital into several situations that appeared attractively priced but where the underlying businesses faced fundamental secular challenges rather than cyclical headwinds. "We learned that you can't finance your way out of a broken business model," he noted. "The discount rate required for truly distressed situations often exceeds what we can realistically achieve."

Golub's opportunistic strategy exists in an increasingly crowded field. Firms like Ares Management, Blue Owl Capital, and Oaktree Capital have all raised substantial opportunistic or special situations funds targeting similar situations. Meanwhile, traditional distressed debt hedge funds are moving upstream into private credit workouts, and business development companies (BDCs) are increasingly competing for rescue financing opportunities.

Cashman acknowledged the competition but argued that Golub's integrated platform—combining traditional direct lending, asset-based lending, and opportunistic strategies under one roof—provides unique advantages. "We can offer a company a full suite of solutions," he explained. "Maybe they need a traditional cash flow loan for their core business, an ABL facility for working capital flexibility, and an opportunistic piece for growth capital or a refinancing. We can structure all of that efficiently because we have expertise across the capital structure."

This capability matters particularly in complex sponsor situations where multiple constituencies need to be satisfied. Golub can simultaneously refinance an existing credit facility, provide growth capital for acquisitions, and offer the sponsor a path to eventual liquidity—all while maintaining a coherent capital structure and aligned incentives.

Given the inherently riskier nature of opportunistic credit, Golub has implemented several portfolio-level risk management protocols that differ from its traditional direct lending business. The firm targets a more concentrated portfolio of 15-25 opportunistic positions at any given time, compared to 100+ positions in its flagship direct lending funds. This concentration allows for deeper operational involvement but requires careful position sizing and diversification across industries and situations.

The firm also maintains stricter industry diversification requirements, limiting exposure to any single sector to 20% of the opportunistic portfolio versus 25-30% in traditional lending. Cashman noted that sector-specific headwinds often drive the stressed situations Golub targets, making diversification particularly important.

"We're very deliberate about not over-concentrating in sectors we think are structurally challenged," Cashman said. "Even if a specific opportunity looks attractive, we need to consider the portfolio-level exposure." He cited retail and certain commercial real estate sectors as examples where Golub is maintaining minimal exposure despite seeing occasional compelling opportunities.

As Cashman looks toward 2026, he expects the opportunity set for opportunistic credit to expand meaningfully. The combination of elevated interest rates (even with modest Fed cuts), maturing loans, and sponsor fatigue with underperforming assets should create sustained deployment opportunities. However, he cautioned against assuming this translates into easy returns.

"The market is getting more sophisticated about pricing risk," he noted. "The days of achieving distressed returns on relatively healthy businesses are largely over. You need to be right about the operational turnaround, the exit timing, and the competitive dynamics. It's genuinely hard work."

For investors evaluating opportunistic credit strategies, Cashman's framework offers several key considerations. First, manager selection matters enormously—experience navigating stressed situations and workout negotiations can mean the difference between strong returns and permanent capital impairment. Second, patience is essential; the best opportunities often require 24-36 months to mature, and investors demanding quarterly liquidity may be disappointed. Third, alignment of interests between GPs and LPs is critical given the discretionary nature of deal selection and workout negotiations.

Golub itself is raising a new $2 billion opportunistic credit fund—its third vehicle in this strategy—which Cashman expects to deploy over a 24-30 month period beginning in mid-2025. The fund targets net returns of 12-15% with a focus on senior secured or first-lien positions that offer downside protection even in adverse scenarios.

Golub's strategic positioning reflects broader themes reshaping private credit markets. The asset class has grown from roughly $500 billion in assets under management in 2015 to over $1.5 trillion today, according to Preqin data. This rapid expansion during a period of historically low interest rates and strong economic growth means a substantial portion of the portfolio has never been stress-tested through a genuine downturn.

The emergence of large-scale opportunistic strategies from incumbent direct lenders like Golub suggests the industry is preparing for a period of normalization—if not outright distress. Rather than viewing stressed situations as aberrations to be avoided, leading managers are building permanent capital vehicles designed to capitalize on these opportunities.

This shift has important implications for private equity sponsors as well. The availability of rescue capital from sophisticated lenders may extend the life of portfolio companies that might otherwise face bankruptcy or fire-sale exits. However, sponsors should expect to pay meaningfully for this capital—both in terms of higher interest rates and potential equity dilution. The days of sponsor-friendly rescue financing are largely over; lenders like Golub are structuring deals to ensure they get paid first and participate in upside if the turnaround succeeds.

Greg Cashman's perspective, as articulated in the Evercore conversation, offers a window into how private credit is evolving from a growth-focused, sponsor-friendly lending market into a more mature asset class with differentiated strategies across the risk spectrum. Golub's opportunistic approach—focused on middle-market businesses, sponsor-backed situations, and operational turnarounds rather than pure distressed debt investing—represents a pragmatic middle ground between traditional direct lending and vulture investing.

For market observers, the firm's deployment pace, pricing expectations, and portfolio construction offer valuable benchmarks for assessing the health of private credit markets. If Golub is seeing sustained opportunities at 12-18% IRRs without taking significant equity risk, it suggests meaningful dislocation in middle-market credit. Conversely, if deployment slows or pricing compresses, it may signal that the anticipated wave of defaults and refinancings is taking longer to materialize than expected.

As we move through 2025 and into 2026, the success of strategies like Golub's will provide important data points about the durability of private credit as an asset class. Can sophisticated lenders navigate stressed situations while preserving capital and generating attractive returns? Or will the complexity of modern capital structures, sponsor dynamics, and competitive pressures erode returns?

Cashman's sober assessment—acknowledging opportunities while emphasizing selectivity, operational focus, and rigorous risk management—suggests that the most experienced managers understand the challenges ahead. For investors, sponsors, and market participants, his framework offers a valuable roadmap for navigating what promises to be a dynamic and potentially turbulent period in private credit markets.

The ultimate question isn't whether opportunistic credit opportunities will emerge—they almost certainly will. Rather, it's whether managers can execute on these opportunities with the discipline and expertise required to generate sustainable, risk-adjusted returns. Based on Golub's track record and Cashman's thoughtful approach, the firm appears well-positioned to answer that question affirmatively. Time will tell whether the broader market shares that success.