The European debt market saw a resurgence in 2024, with institutional loan issuance reaching a record-breaking 207 billion euros, surpassing the previous peak of 158 billion euros in 2017.
This is clear from DC Advisory's European Debt Market Monitor: Q4 2024 & Outlook.
Refinancing and repricing activity dominated the market, accounting for 57 percent of total volumes, as borrowers capitalized on competitive rates.
Driving this surge was record Collateralized Loan Obligation (CLO) issuance, hitting an all-time high of 45 billion euros. This fueled demand for credit and led to tightening spreads, reducing borrowing costs. The most aggressive repricing occurred in Q4, as issuers sought to refinance ahead of potential macroeconomic shifts, particularly in response to the U.S. elections.
Mergers and acquisitions (M&A) financing showed signs of recovery, with non-refinancing related volumes more than doubling to 40.3 billion euros compared to 2023.
However, overall M&A activity remained 16 percent below the prior decade’s average, as private equity firms faced valuation mismatches that slowed buyouts. Meanwhile, mid-market activity remained strong, with financing structures becoming more flexible and competitive.
Dividend recapitalizations emerged as a key liquidity tool for private equity sponsors amid slow M&A deal flow, exceeding 38.5 billion euros.
Continuation vehicles also gained traction, surpassing 15 billion euros in transactions as sponsors opted to extend holding periods for high-value assets rather than sell at discounted prices.
Looking ahead, 2025 has started strongly, with easing inflation and lower interest rates from the Bank of England and expected rate cuts from the European Central Bank creating favorable conditions for borrowers. Private equity sponsors, armed with an estimated 1.3 trillion euros in dry powder, are poised to drive M&A volumes higher, which would, in turn, boost new credit supply.
However, political and macroeconomic uncertainties remain, particularly in France and Germany, where instability and economic stagnation pose challenges. Additionally, potential U.S. trade policies under the Trump administration could create headwinds for European markets, especially in the automotive and manufacturing sectors.
Despite these risks, if M&A activity rebounds as anticipated, the European debt market is well-positioned to sustain growth in 2025, backed by ample liquidity and strong investor demand.
