DC Advisory's European Debt Market Monitor: Q4 2024 & Outlook

European debt outlook

Q4 2024 overview

The European Broadly Syndicated Loan (BSL) market saw a resurgence in 2024, with institutional loan issuance reaching a record €207bn, surpassing the previous peak of €158bn in 2017[1]. Refinancing and repricing activity dominated, accounting for 57% of volumes[2] as borrowers moved to secure lower costs in a competitive market.

Repricing waves occurred throughout the year, and have continued into 2025 so far, tightening spreads and reducing borrowing costs. This was driven by record CLO issuance, reaching an all-time high of €45bn[3], and the resultant pressure to deploy fuelling demand for credits. The most aggressive wave occurred in Q4, as issuers initially rushed to refinance ahead of potential macroeconomic shifts resulting from the US election, with single-B rated loans compressed to as low as E+350bps[4].

We saw signs of recovery in M&A-driven financing, with non-refinancing related volumes reaching €40.3bn, more than doubling from 2023, although still below long-term averages[5]. Private equity sponsors remained active despite what we see as tightening valuation mismatches. These mismatches continued to slow buyouts and constrain LBO financings, keeping European M&A market activity 16% below the prior 10-year average[6].

Mid-market activity remained resilient, marked by price compression and greater flexibility in financing structures as volumes increased to 319 from 257 in 2023[7]. The BSL market has reasserted itself in the upper mid-market segment, driving margin reductions, and increasing competition for private credit lenders who had faced limited competition from the BSL market in 2023.

Sponsors increasingly turned to dividend recaps as alternative liquidity solutions in the absence of strong M&A deal flow, with total dividend recap activity exceeding €38.5bn[8]. Continuation vehicles also gained traction, with transactions surpassing €15bn[9], allowing sponsors to extend holding periods for high-quality assets rather than sell at discounted valuations.

Outlook

Q1 2025 has begun strongly, fuelled by a surge in the European BSL which has entered 2025 in a strong position, with January continuing the trends we observed in 2024 and easing inflation[10] fuelling appetite for credits.

The reduction in rates by the BoE in February[11] as well as the expectation of continued reductions by the ECB[12] should sustain borrower-friendly conditions and continue to encourage refinancing activity. Lower borrowing costs should also support new issuances and drive LBO activity as valuation expectations between buyers and sellers align.

For M&A, we believe volumes are poised for a strong rebound, with private equity sponsors holding an estimated $1.3 trillion in dry powder[13] and auction processes accelerating. A recovery in M&A would consequently support the supply of new credits – reversing the relatively subdued M&A-related volumes of 2024.

If M&A activity does not rebound, we expect private equity sponsors to continue using dividend recaps and continuation vehicles to return liquidity to their LPs.

Although the US election was finalized in November, political and macroeconomic risks remain key concerns. If these risks do minimize over the year, we would expect to see a more positive market sentiment and an increase in volumes.

• France continues to grapple with political instability following the collapse of Prime Minister Michel Barnier’s government in December[14]
• Germany faces economic stagnation[15], although the conclusion of the recent election tempers uncertainty, the vote share of the AfD and ongoing discussions over a coalition means a stable government has not yet been formed [16]
• Potential US trade policies under the Trump administration could introduce further headwinds, particularly if tariffs on European imports are enacted. These are likely to have a disproportionate impact on France and Germany as the tariffs target key automotive and manufacturing sectors[17]

Although the French and German economies have had struggles over the past year, we have seen strong growth in large parts of the EU, particularly Spain and Ireland.

Overall, we expect 2025 to be characterized by sustained refinancing and repricing activity, with M&A volume determining the market’s longer-term trajectory. If dealmaking accelerates as expected, the European debt market is well placed to fund the increased supply with ample dry powder.

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

[1] European Credit Markets Quarterly Wrap_08-Jan-2025

[2] European Credit Markets Quarterly Wrap_08-Jan-2025

[3] European Credit Markets Quarterly Wrap_08-Jan-2025

[4] European Credit Markets Quarterly Wrap_08-Jan-2025

[5] European Credit Markets Quarterly Wrap_08-Jan-2025

[6] 2025-01-06 - European dealmakers brace for busy 2025 as financing conditions ease — Dealspeak EMEA_Debtwire

[7] The January 2025 DC Advisory Lender Survey

[8] 2024-12-23 - LevFin Highlights FY24_ gross issuance breaks records, buoyed by refinancing and repricing deluge_Mergermarket

[9] European Credit Markets Quarterly Wrap_08-Jan-2025

[10] https://www.ecb.europa.eu/press/pr/date/2025/html/ecb.mp250130~530b29e622.en.html

[11] https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2025/february-2025

[12] https://www.ecb.europa.eu/press/pr/date/2025/html/ecb.mp250130~530b29e622.en.html

[13] European Credit Markets Quarterly Wrap_08-Jan-2025

[14] https://www.bbc.co.uk/news/articles/c5y780j8e2xo

[15] https://news.sky.com/story/germany-europes-largest-economy-is-facing-a-third-consecutive-year-of-recession-13289549

[16] https://www.politico.eu/article/germany-election-coalition-talks-cdu-friedrich-merz-spd-lars-klingbeil/

[17] https://www.europarl.europa.eu/topics/en/article/20250210STO26801/eu-us-trade-how-tariffs-could-impact-europe