In Europe, the traditional boundaries between broadly syndicated loans (BSLs), high yield bonds and private credit have become less distinct. Competition for deals intensified throughout 2025, reshaping the landscape for sponsors and issuers.
Refinancing dominated European lending activity, accounting for the overwhelming majority of issuance. But this was far from a defensive manoeuvre. Instead, issuers used the window strategically—extending maturities, embedding portability features and optimising capital structures in anticipation of the improved exit opportunities that dealmakers expect to emerge in 2026.
Private credit players compressed margins below 5 per cent to compete with BSL financing, and increasingly deployed covenant-lite structures. Meanwhile, BSL lenders cut fees and increased flexibility to retain market share. The result has been an environment in which sponsors can have real optionality between channels based on execution speed, pricing and structural requirements. This competitive dynamic has been underpinned by abundant capital. Private credit fundraising remained robust, CLO formation stayed active and insurance capital continued flowing into the asset class.
The pressure to deliver exits has clearly intensified. Private equity holding periods have reached record highs, as managers waited for market conditions to improve. While dividend recaps, NAV loans and secondary market transactions provided some relief, institutional investors are demanding orthodox exits and capital distributions. The refinancing activity in 2025 has positioned portfolio companies to capitalise on an expected near-term increase in M&A and exit activity.
Europe's leveraged finance market entered 2026 not merely open for business but optimised for it. Lenders are well capitalised, competition is fierce and issuers have used the past 12 months to put themselves in a position of maximum preparedness. If the anticipated rebound in dealmaking materialises, the lending market is more than ready to support it.
