Our thinking

European leveraged finance: A whole new world

What's inside

European leveraged finance in 2023 was saddled with the negative effects of elevated interest rates. But as the market adjusts to the "new normal", rate and price stability offer hope for a brighter 2024.

European leveraged finance overview

Rising interest rates have pushed up borrowing costs and constrained issuance activity
Subdued M&A pipeline and cautious underwriting by banks limit buyout financing opportunities
Where transactions have progressed, the bulk of activity has been propelled by refinancing deals
Private credit proves resilient in the face of wider dislocation, attracting banks into the segment
Jumbo Worldpay financing shows that investor appetite for high-quality credits remains strong, with a potential warming for backdrop in 2024

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Five factors shaping leveraged finance in 2024

After a slow year, market behaviour will mimic certain human traits, which will act as drivers in leveraged finance markets in 2024, as lenders and borrowers look to increase activity levels
Restlessness, imitation, creativity, distraction and optimism will, in their own way, each propel market participant activity levels
More banks may move to build out their private debt capabilities, imitating the successful private debt model that demonstrated its resilience through the current cycle
In a flat market, creativity will see lenders repurpose existing funding sources and develop new products to unlock liquidity

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Q&A explainer: Private debt in a changing market

Among alternative assets, private debt has matured rapidly and is enjoying a 'golden moment' as a markedly attractive floating-rate product
In 2024, a mounting interest burden will give rise to novel debt structures for LBOs
As a typical credit is held by a single lender or small club, the private debt model enables providers to move more quickly than their peers
Not wishing to miss this golden opportunity, investment banks are quickly establishing or building up their private debt desks, introducing another valuable option to the funding mix

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European leveraged debt in focus

View full image: Selected European leveraged loan and high yield bond markets by volume and value (PDF)

German debt markets ready to reset after a challenging year

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PE deal financing in 2024: Better times ahead?

After a challenging period for sponsor deal activity and limited access to finance, the outlook for the year ahead is improving
Expectations of interest rate stability are raising hopes that pricing and modelling capital structures will be easier and allow gaps in pricing expectations between buyers and sellers to narrow
High levels of dry powder and unexited assets will put structural pressure on managers to do deals, improving prospects for deal financing pipelines
Private debt has gained market share and will remain a key part of the acquisition finance mix, but loan and bond markets are rallying, providing sponsors with a wider set of financing options

Read 6 min. article