DC Advisory's European Debt Market Monitor: Q1 2025 & Outlook

European debt market

Q1 2025 overview

The European Broadly Syndicated Loan (BSL) market saw a strong start to the year, with total institutional volumes reaching €99.8bn in Q1 25, a significant increase from €53.4bn in Q1 24[1]. It is important to note, however, that €66bn of this total comprised extensions and repricings, with only €33.8bn of new volumes[2].

January and February were particularly active, but momentum slowed in March as geopolitical concerns – particularly fears around the introduction of US tariffs – triggered market volatility and dampened risk appetite. We observed borrowers capitalize on favorable market conditions and strong investor demand to reduce their cost of debt, with average spread reductions widening to 66bps, up from 54bps in Q4 24[3].

Private credit markets were similarly competitive. Direct lenders tightened pricing in response to pressure from the BSL market and a strong fundraising foundation laid in 2024. Average spreads narrowed to 558bps in Q1 25 from 573bps in 2024[4], and certain borrowers secured terms meaningfully tighter than average, particularly in Euros.

Despite these reductions, direct lending values in Europe reduced to €12.4bn in Q1 25 from €19.6bn in Q1 24,[5] amid a slowdown in M&A activity and increased competition from the BSL market.

Although we hoped for a rebound in M&A activity in 2025, volumes have remained subdued. Total European M&A loan issuance declined to €9.4bn in Q1, down from €12.2bn in Q4 24[6], as valuation gaps persisted. Macro uncertainty and geopolitical tension, particularly through March, have continued weighing on buyers and sellers, delaying many sale processes.

Outlook

The BSL market was effectively shut for much of April following Liberation Day[7], while private credit lenders also adopted a wait-and-see approach, pausing activity to assess the broader implications.

In recent weeks, however, activity has started to recover. The BSL market has effectively reopened, and private credit lenders have resumed deployment, encouraged by signs that US trade policy may moderate[8].

Following a strong year of fundraising in 2024, lenders with ample dry powder remain well-positioned to support refinancing and repricing activity – though they have become more selective. Borrowers deemed less exposed to tariff-related disruption are proceeding with plans, while those in heavily impacted sectors are pausing or facing increased due diligence.

Macroeconomic tailwinds have also helped restore some stability. Inflation continues to trend downward across Europe[9], prompting further monetary policy support. In April, the European Central Bank lowered its benchmark rate for the third time this year[10] to 2.25%[11], shortly followed in May by a Bank of England reduction to 4.25%[12].

The introduction of tariffs has injected new uncertainty into earnings forecasts and valuation assumptions, particularly for businesses reliant on international supply chains or US exports. As reported in our latest European Private Equity Mid-Market Monitor, buyout volumes have so far underperformed initial 2025 forecasts as many sponsors have delayed or shelved exit processes as a consequence of this uncertainty and volatility[13]. While we do believe some recovery is possible by the end of the year, contingent on tariff negotiations, the near-term outlook remains slow[14].

Should the BSL market see a sustained pullback in activity, we believe private credit lenders may once again step into the void, as seen in previous times of geopolitical volatility. These windows of dislocation can create opportunities for private capital to provide flexible solutions where public markets fall short.

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References

*Unless otherwise indicated, all tables, data and statistics provided in this piece, including with respect to deal activity, have been collected via the April 2025 DC Advisory Lender Survey, subject to the limitations of described below.

**Transactions for the Italian region have been sourced from the LSEG Loan Connector (which is a publicly-available web-based loan information platform), as well as company press releases and filings, but has not otherwise been independently verified with the lenders. The region has been incorporated into the Debt Market Monitor from Q1-24 and therefore, transactions are only reported for this Q1-24 period.

The April 2025 DC Advisory Lender Survey: (DC Advisory’s independent survey of 98 European banks and direct lenders. which was completed in April 2025 and conducted across UK, France, Germany, Austria, Switzerland, Spain, Belgium, Netherlands and Luxembourg (referred to herein as the “The April 2025 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.)