Syndicated debt markets in Europe have seen “significant development” to this point this yr, regardless of short-term volatility triggered by geopolitical uncertainty, in keeping with Baird.
Main issuance year-to-date in syndicated money owed markets is up 34 per cent versus the identical interval in 2024, regardless that no new issuance hit the market within the three weeks following US President Donald Trump’s “liberation day” tariff bulletins.
Learn extra: Personal fairness “much less uncovered” to tariffs than public equities
Nevertheless, since that hiatus, single B credit score spreads and secondary pricing have almost returned to pre-April ranges, underscoring short-term volatility in syndicated markets, in keeping with Andrew Lynn, managing director in Baird’s non-public capital markets group and head of debt advisory in Europe.
“Personal direct lenders have as soon as once more capitalised on this volatility, stepping in the place syndicated markets paused,” he mentioned, citing for instance KKR’s acquisition of Karo Healthcare.
He mentioned that regardless that some funds have been in a position to “look by the headlines” and decide to transactions when the syndicated market was difficult, “there’s naturally a higher scrutiny of debtors straight impacted by identified or potential tariffs and lenders are additionally aware of the influence on debtors’ purchasers and their skill to navigate or take in adjustments”.
Learn extra: Personal debt funds flock to smaller offers
Lynn additionally pointed to prolonged maintain durations as one of many key themes he’s watching as European debt markets navigate the uncertainty of 2025.
Macroeconomic pressures and geopolitical dangers are behind the lengthening maintain durations in non-public fairness portfolios, with the median in Europe having elevated from roughly 5 years in 2021, to 6 years in 2024.
“Clearly, this additionally has a direct influence on direct lenders’ portfolio maintain durations; whereas typical mortgage maintain durations was once three years or much less, funds at the moment are assuming an additional 12 or 24 months on common,” Lynn mentioned.
Whereas mortgage maturity outcomes rely on borrower efficiency, Lynn famous that “fund-specific constraints additionally play a job”, reminiscent of funds being outdoors their funding interval, and that sponsors, in flip, might hesitate to increase maintain durations on account of carried curiosity concerns and fund structuring limits.
Attempting to refinance offers from an previous fund utilizing capital from a brand new fund might require a change of possession or a swap right into a continuation car, “in any other case it’s possible {that a} third-party refinancing is required”, he mentioned.
“Like banks, direct lenders are cautious about refinancing incumbent lenders out of credit, notably given the efforts often made to keep up portfolio credit. Due to this fact, the bar is increased and will name for brand spanking new layers of capital or certainly various capital to supply an answer,” Lynn added.
Learn extra: KKR: Europe amongst most sound credit score markets in developed world