DC Advisory's European Debt Market Monitor Q1 2026 & Outlook

European debt market

Q1 2026 overview

The European Broadly Syndicated Loan (BSL) market endured a volatile start to 2026, with loan volumes falling to €22.7bn in Q1, representing the lowest first-quarter total since 2023 and a contraction from the €41.4bn recorded in Q1^[1].

Market activity was suppressed by the escalating geopolitical tensions in the Middle East, compounding tariff and AI related uncertainty present entering 2026. Notably, nearly 82% of Q1 issuance was completed prior to the airstrikes on Iran^[2], after which BSL market activity effectively paused as lenders assessed the implications of higher oil prices, inflationary pressures, and the potential impact on global trade resulting from closure of the Strait of Hormuz.

Lender scrutiny of software and technology credits continued through Q1. We expect this shift in sentiment to have a more pronounced impact within private credit, where some technology-focused direct lenders are estimated to have up to 50% exposure to software-related assets^[3].

However, while AI remains a core diligence focus, we observe that lenders have developed more structured frameworks for assessing the related risks. Nevertheless, as LPs scrutinize portfolio concentration, we have noted a clear movement away from software credits towards more “blue-collar” sectors, resulting in a reduction in ARR financing structures.

Against the market backdrop, borrowers deferred opportunistic refinancing activity, with refinancing volumes contracting to €9.2bn in Q1 26 down from €22.3bn in Q1 25^[4]. Conversely, M&A-linked issuance demonstrated relative resilience, with volumes reaching €10.2bn, approximately 45% of total Q1 BSL volumes^[5]. While this fell short of a full recovery, it continued the gradual improvement in M&A-related activity observed at the end of 2025.

2026 outlook

The beginning of Q2 remained subdued, reflecting ongoing risk aversion. However, conditions became more constructive moving into May, with the gradual reopening of the BSL market^[6], albeit with heightened selectivity and stringent diligence requirements.

Despite the more subdued opening to the quarter, underlying market fundamentals are strong. Both the BSL and direct lending markets continue to hold substantial dry powder, and lender appetite for high-quality credits is strong.

Whilst geopolitical instability will continue to impact sentiment, we expect an uptick in volumes as the pressure to return liquidity to LPs continues to rise.

As noted, the market has now adapted to the implications of AI. However, we expect the rebalancing of portfolios to continue into the near future with “blue-collar” sectors continuing to remain attractive to lenders.

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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 2026 DC Advisory Lender Survey, subject to the limitations described below. 

The April 2026 DC Advisory Lender Survey: (DC Advisory’s independent survey of 99 European banks and direct lenders, which was completed in April 2026 and conducted across the UK, France, Germany, Austria, Switzerland, Spain, Belgium, Netherlands and Luxembourg (referred to herein as the “The April 2026 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 with which DC Advisory interacts 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 comparing 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.)

**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 have not otherwise been independently verified with the lenders. The region has been incorporated into the Debt Market Monitor beginning in Q1 24 and, therefore, transactions are only reported from Q1 24 and onward.

[1] https://pitchbook.com/news/reports/q1-2026-european-credit-markets-quarterly-wrap

[2] https://pitchbook.com/news/reports/q1-2026-european-credit-markets-quarterly-wrap

[3] https://pitchbook.com/news/reports/q1-2026-european-credit-markets-quarterly-wrap

[4] https://pitchbook.com/news/reports/q1-2026-european-credit-markets-quarterly-wrap

[5] https://pitchbook.com/news/reports/q1-2026-european-credit-markets-quarterly-wrap

[6] https://pitchbook.com/news/reports/q1-2026-european-credit-markets-quarterly-wrap