European private credit booms as private equity firms are forced to refinance

European private credit firms experienced a record-high in lending during the first half of the year, reaching a significant €63.2 billion, according to new data from Debtwire. This surge was primarily due to private equity firms postponing sale processes and renegotiating debt for their portfolio companies as a result of a lack of exit opportunities.

In comparison, the previous year saw only around €40 billion in deals. Patrick Costello, an EMEA private credit analyst at Debtwire, stated that the shortage of exit prospects, especially for private equity-backed companies, led to lenders and sponsors pushing maturities out with refinancing. The majority of refinancing activity took place in the first quarter, with private credit firms lending approximately €34.8 billion.

However, lending by non-banks surged dramatically in recent years due to traditional banks distancing themselves from issuing loans to higher-risk businesses. In the second quarter, lending from non-banks dropped by 25% year on year to €28.4 billion, primarily because of a decline in M&A activity. As a result, large firms opted to secure cheaper debt by tapping public debt markets instead of private credit.

This shift in borrowing behavior forced private credit firms to focus on smaller mid-market deals, as competition with public debt markets is less intense in this segment. Among the leading direct lenders, Ares Management led with 31 new deals, accounting for 7.8% of the market, followed by Arcmont with 23 deals (5.7% of the market), and Apollo with 20 deals.