DC Advisory's European Debt Market Monitor: Q3 2024 & Outlook

European debt outlook

Q3 2024 overview

The European Broadly Syndicated Loan (BSL) market volumes for year-to-date Q3 2024 has surpassed the full-year total for 2021, making 2024 the strongest year for volumes since the COVID-19 pandemic, with a full quarter remaining[1]. This milestone was achieved despite a more pronounced summer slowdown, with volumes falling to €29.6bn in Q3 from €73.4bn in Q2 2024[2].

Material near-term uncertainties weighed on borrowers and sponsors in Q3 2024: the US election, the first budget of a new UK government, political instability in France, and a stagnant German economy[3]. These macro conditions and continued doubts over valuations contributed to a sluggish European M&A environment, with a pronounced summer slowdown; volumes were down 57.3% compared to Q2 2024[4].

Refinancings, extensions, and repricings dominated loan supply in Q3 2024, totalling €23.3bn in BSL volumes[5] and 56% of completed mid-market transactions according to our Lender Survey data[6]. With high liquidity levels and limited new supply, borrowers took advantage of a repricing wave driven by these favourable conditions. Although cost savings from repricings decreased slightly, averaging 56.3 basis points (bps) in Q3 versus 71.4 bps in Q1[7], borrowers actively pursued opportunities to lower their cost of capital or protect their existing exposures.

We observed a similar trend in the private credit market, where direct lenders proactively reduced margins in response to competition from the BSL market. In some cases, we have seen margins dropped below 500 bps as lenders sought to deploy capital.

In addition to margin reductions, greater innovation and flexibility were evident from lenders across both the BSL and private credit markets. We have also seen this through an increase in the use of HoldCo PIK structures and higher dividend recap volumes, with BSL market volumes related to the latter rising 101% to €2.42bn in Q3 2024[8]. 

Outlook

Q4 2024 began strongly, fuelled by a small surge in M&A-related activity as sponsors and institutions sought to close pipeline transactions ahead of the US general election and the UK autumn budget[9]. M&A-related volumes in October 2024 alone surpassed the total for all Q3 2024[10].

While the US election and UK autumn budget are now behind us, several uncertainties remain:

• The potential introduction of tariffs or changes in US policy toward Ukraine and the Middle East during President Trump’s second term[11]
• Political uncertainty in Germany as it gears up for national elections, now expected to be held early in the new year following the collapse of its coalition government[12]
• France continues to face political instability after the snap election called earlier this year[13]

Despite mixed business reactions to the UK's autumn budget[14], particularly the increase in employer NICs[15], the UK appears more stable compared to much of Europe, which we believe could lead to increased capital flows into the UK.

Overall, we do not anticipate significant movement in volumes during Q4 2024. We expect refinancings and repricings to dominate supply once again, continuing the trends we have observed this quarter. We also expect margins to remain low, with lenders continuing to innovate and offer flexibility through HoldCo PIKs and dividend recapitalizations.

While sponsors face mounting pressure to deploy and return capital to their LPs, we are optimistic that a sustained increase in M&A volumes is likely in 2025.

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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 October 2024 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 Q3-24 and therefore, transactions are only reported for this Q3-24 period.

The October 2024 DC Advisory Lender Survey: (DC Advisory’s independent survey of 98 European banks and direct lenders. which was completed in October 2024 and conducted across UK, France, Germany, Austria, Switzerland, Spain, Belgium, Netherlands and Luxembourg (referred to herein as the “The October 2024 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_2024_European_Credit_Markets_Quarterly_Wrap

[2] LCD: Q3_2024_European_Credit_Markets_Quarterly_Wrap

[3] https://economy-finance.ec.europa.eu/economic-surveillance-eu-economies/germany/economic-forecast-germany_en

[4] LCD: Q3_2024_European_Credit_Markets_Quarterly_Wrap

[5] LCD: Q3_2024_European_Credit_Markets_Quarterly_Wrap

[6] The October 2024 DC Advisory Lender Survey

[7] LCD: Q3_2024_European_Credit_Markets_Quarterly_Wrap

[8] LCD: Q3_2024_European_Credit_Markets_Quarterly_Wrap

[9] https://www.dcadvisory.com/news-deals-insights/insights/dc-advisory-s-european-private-equity-mid-market-monitor-q3-2024-outlook/

[10] LCD: European Leveraged Finance Monthly Trend Lines_07-Nov-2024

[11] https://www.theguardian.com/business/2024/nov/07/more-tariffs-less-red-tape-what-trump-will-mean-for-key-global-industries

[12] https://www.nytimes.com/2024/11/22/business/germany-economy-budget-elections.html

[13] https://www.atlanticcouncil.org/blogs/new-atlanticist/frances-new-government-aims-to-calm-the-political-storm-what-will-it-mean-for-foreign-policy/

[14] https://www.raconteur.net/economy-trends/autumn-budget-2024-what-it-means-for-british-business

[15] https://www.cipp.org.uk/resources/news/employer-ni-contributions-changes-from-april-2025.html