The rise of “zombie credits” – leveraged buyout companies with dysfunctional capital structures – has made lenders reluctant to restructure loans and sparked fears of a second liquidity crisis in Europe.

Despite declining credit quality, industry insiders and analysts have been taken aback by senior lenders' apparent reluctance to initiate wholesale restructurings of bad loans backing European leveraged buyouts that could go bust if they are not restructured over the next five years. Industry sources warn that the unwillingness of banks and other lenders to deleverage businesses and accept further writedowns on the value of their exposures could initiate another credit crunch.