Welcome to Taking the Credit, 9fin’s weekly observations on the issues affecting the European private credit market. To get these updates in your inbox each week, sign up here.

What’s the likely outcome if you throw in lower interest rates with a resurgent BSL market, increasing repricing pressure, and a persistently weak M&A? You’ve guessed it, private credit providers in Europe falling over each other to get their hands on new paper.

This scenario is beginning to play out with the Bank of England cutting interest rates by a quarter-point to 4.5% on Thursday (6 February), with more cuts on the horizon. It also halved its 2025 growth outlook for the UK. Added to this, a wave of repricings keeps washing over the European leveraged loan market, making up a good chunk of the primary flow so far this year. As a result, margins compressed by 80bps on average in European BSL repricings in January, and more of these deals are expected to come.

So, more than a month into 2025, it’s pretty safe to say that it’s an issuers’ market. And across Europe, private equity firms are taking advantage of exactly that.

“Because the market is so void of quality assets, in order for a lender to win on a deal, they have to be capable of saying yes to almost anything by the sponsor,” a lawyer told 9fin. “Some processes now are very aggressive, there are [private credit] funds that urgently need to deploy money, so they are very eager and will step over others,” commented a debt fund executive.

In some cases, private equity firms looking to sell or refinance portfolio companies are not even making lender presentations, according to the lawyer. Private credit funds have to put their name in, terms, pricing, and so on. “And should you have a question, you're out of the game.”

“Everyone in private credit is beating each other up over the few good deals in the market,” said a debt adviser.

Losing out to BSL

It will not always be enough to compete with BSL. That’s apparent in the case of Swiss firm Colosseum Dental Group, which will refinance its existing private credit facilities, with JP Morgan pre-marketing a €1bn TLB. Goldman Sachs' private credit arm led a €1bn refinancing deal for Colosseum in 2024.

However, Spanish theme park operator PortAventura recently went the other direction as the KKR and Investindustrial-backed firm refinanced its BSL loans with a €640m private credit package from direct lenders including Macquarie’s principal finance arm.

Still, in the BSL market, it’s expected that private credit refinancings will make up a greater share of new money loan supply in 2025, as private credit issuers increasingly approach banks in the hunt for tight spreads.

This is a continuation of a theme from 2024 when the average margin on first lien and unitranche instruments fell more than 50bps compared to 2023, according to 9fin’s European Private Credit Review Q4 24.

Similarly, in the US, spreads in direct lending have tightened, and deals printing below the 500bps mark are more common now.

How will private credit deal with the increasing pressure when it comes to dealmaking? It will probably depend a lot on the individual fund. “There were situations where we wanted to continue but lost out to other funds because we couldn’t compete with their aggressiveness. There are limitations to what we can accept in terms of pricing, headroom, and earnings adjustments,” said the debt fund executive.

Funds drifting apart

There’s been bifurcation in private credit when it comes to fundraising, where larger fund managers tend to benefit from their size and keep raising even larger funds, while smaller players find it increasingly difficult to prevail — a process that had been visible early last year already and continued throughout 2024 in Europe and the US.

And it looks like this trend is taking root on the dealmaking level as well, where larger funds might be able to drive out smaller ones over pricing and terms, also because a lack of large-cap deals means that big names increasingly turn to lower tiers of the mid-market to find opportunities.

And if anything, competition is only to increase in European private credit, with major asset managers looking to get a piece of the action. The latest is M&G Investments, which this week announced the takeover of Swedish private credit firm P Capital Partners, absorbing the €7bn direct lending strategy into M&G’s £75bn private markets business, £19bn of which is dedicated to private and structured credit.

However, in Europe, fiercer competition is also set against the backdrop of an increase in private credit deal activity at the end of the year, with an increase in the number of LBOs financed by direct lenders, giving hope that the M&A drought is finally over.

But it’s still a slow process. “I do see a very quiet start to the year, which is not unusual,” said Soren Christensen, partner and head of capital markets at Cinven on this week’s Cloud 9fin podcast episode. While sponsor-driven M&A will likely not bounce back strongly in a single quarter, Christensen believes that the gradual recovery seen in 2024 will continue into 2025.

“We see more intros now in Benelux, Germany, the Nordics, activity is coming back slowly,” said the debt fund executive previously mentioned. “We have more in our pipeline, there is a positive development in that direction. It’s not great, but it’s okay.”

“2025 will be the year of normalisation,” commented Goldman Sachs’s Amit Bahri, co-head of European direct lending, on Cloud 9fin. “So we are really gearing up for that.”

Private credit pipeline

Entering February, there are indeed signs that the European private credit space is starting to blossom.

Milan-based buyout shop Ambienta is due to launch a sale of Italian digital trust services firm Namirial, which could fetch a valuation of up to €1bn.

After murmurings last year that Softway Medical would be up for grabs in early 2025, a sale process is expected to formally launch this quarter, with advisors Evercore and Harris Williams marketing the business off around €60m-€65m EBITDA.

London buyout firm Livingbridge is relaunching a process to sell its UK-based insurance broker Jensten Group, with EBITDA of £45m-£50m.

Hg Capital has mandated Arma Partners to advise on the hotly anticipated sale of French fintech company smartTrade, marketing the firm off €25m EBITDA.

Chequers Capital is exploring a sale of French portfolio company Eris with around €20m EBITDA, and Bowmark is preparing to sell Totalmobile in the UK, off €25m EBITDA.

On the refinancing side, BC Partners is set to imminently launch a dual-track refinancing process for Italy’s largest dental chain, DentalPro, marketing the firm off around €60m EBITDA. Motion Equity Partners is turning to the refinancing route for French healthcare and supplement company Olyos Group, shelving prior plans of a sale process, at circa €30m EBITDA.

Ardian is looking to secure around €300m of HoldCo PIK notes from private credit funds for Italy’s Dedalus, which in 2023 had expected to generate revenue of €887m and EBITDA of €208m.

And Ares is providing a financing package to support Waterland’s acquisition of Spain-based engineering consulting services, Incosa, fronting a €12m loan facility and a €15m acquisition facility.

You can read our weekly updated pipeline of new and in-market deals here. And if you’re a fan of this newsletter but aren’t yet a subscriber, email subscriptions@9fin.com for a trial.