Lending by European private credit firms reached a record high of €63.2bn (£54.1bn) in the first half of the year, according to new data from analytics platform Debtwire. This figure compares to approximately €40bn in the same period last year.
The increase was largely driven by a spike in borrowing during the first three months of the year, with €34.8bn lent. This early surge was partly due to private equity firms refinancing their portfolio companies' debt amid a slowdown in exits.
However, the second quarter saw a slump, with the overall value of direct lending dropping 25 per cent year-on-year to €28.4bn. Debtwire analysts suggest this reflects a lull in lending to large firms, which may have opted to tap public debt markets for potentially cheaper deals. Patrick Costello, EMEA private credit analyst at Debtwire, noted that many large-cap borrowers likely chose public markets where pricing tends to be more expensive in the private credit space.
This shift has reportedly led private credit firms to focus on smaller mid-market deals, where competition with public debt markets is less intense. Despite this, direct lenders are in strong competition with each other for attractive deals in this segment.
Across individual markets, deal flow also decreased in the second quarter. The Nordic states experienced the largest decline, with deals falling 23 per cent from the prior year to 30. France saw the second largest drop of 17 per cent, though deal completion remained high at 91, behind the UK and Ireland which recorded 186 deals.