“Despite the challenging backdrop across Europe, there is still a considerable amount of dry powder and we believe lenders are becoming increasingly willing to deploy funds – particularly into good quality assets”

European Debt Advisory group
DC Advisory

European Debt Outlook

Q3 2023 Overview

  • European liquid markets maintained a subdued performance in the first three quarters of 2023, with year-to-date Q3 2023 new issuance volumes totalling €29.8bn. [1] This is a decrease from the €45.6bn recorded during the same period in 2022[2]
  • The decline in issuance volumes can once again be attributed to the underperformance of the M&A market, which now accounts for only 47% of the total market, down from 76% in 2022[3]
  • The market continues to be driven by extension-led supply, which has addressed a large amount of borrowers' refinancing needs until 2025. The average time extended has also increased (3.2 years as of September 2023 compared with 2.8 years in 2022)[4]
  • In the European mid-market, we have observed a slight uptick compared to the previous quarter, though volumes still lag from the previous year. In Q3 2023, there were 192 issuances, marking a 20% increase from Q2 2023 (160 issuances) but a 15% decrease from Q3 2022 (222 issuances)*

2023/2024 Outlook

  • Subdued M&A activity in recent quarters has resulted in a substantial backlog of transactions. With more stable market conditions, this backlog has started to enter the market and, we believe, should contribute to increasing Q4 2023 and 2024 LBO volume
  • Combined with the already strong A&E (Amend & Extend) and refinancing volume, which should maintain their momentum from previous quarters, we expect to see a revival in private credit deal-making going forward
  • Some questions remain over the ability of direct lenders to raise additional capital having generated only €15.9bn across nine funds so far this year (as of September 2023), a significant decrease from the €49.4bn raised across 32 funds in 2021[5]
  • Despite these challenges, there is still a considerable amount of dry powder among European direct lenders. We believe that lenders are becoming increasingly willing to deploy these funds, particularly into good quality assets, with the expectation of stabilizing and potentially lowering margins
  • With higher base interest rates, we expect that the ability to ‘PIK’ a portion of the margin will become a key tool for borrowers and lenders looking to optimize debt service coverage ratios

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*Unless otherwise indicated, all tables, data and statistics provided in this piece, including with respect to deal activity, have been collected via the November 2023 DC November Lender Survey, subject to the limitations of described below.
The November 2023 DC Advisory Lender Survey: (DC Advisory’s independent survey of 98 European banks and direct lenders. which was completed in November 2023 and conducted across UK, France, Germany, Austria, Switzerland, Spain, Belgium, Netherlands and Luxembourg (referred to herein as the “The November 2023 DC Advisory Lender Survey” or the “Survey”). Any such data, including league table data referenced herein is limited to the data provided by the Survey participants and is not meant to constitute definitive market data. The banks and lenders selected for the Survey are based on those that are most active in the market, and that DC Advisory interacts with the most. Accordingly, the Survey participants do not constitute an exhaustive list of banks and lenders who may have been active during the period addressed by the Survey. Comparisons to deal activity or other statistics from prior quarters or other periods are calculated by comparting the results of the Survey to the results from DC Advisory Lender Survey corresponding to the prior period, subject to the same limitations described above.)

[1] LCD Q3 2023 European Quarterly Wrap here 

[2] LCD Q3 2023 European Quarterly Wrap here 

[3] LCD Q3 2023 European Quarterly Wrap here 

[4] LCD Q3 2023 European Quarterly Wrap here 

[5] LCD Q2 2023 European Credit Markets Quarterly Wrap here