2025 European Leveraged Loans Wrap: Lender Protections Rise as Super-Growers Decline; Multi-Toggles, Portability Become More Prevalent; Expect Push for Aggressive Terms in 2026

Legal Analyst: Brian Conway, Aaron Spence, Sylvana Lee
Data Visualizations: Elisabeth Campbell, Charlie Ward

Key Takeaways

• Record volumes driven by repricings. Record volumes of leveraged loans in 2025 despite the initial slump after the U.S. tariff announcement in April. The market continued to be dominated by repricings, refinancings and amend-and-extend transactions.
   
• Debt covenant capacities increase. Average “Day 1” capacities for debt incurrence continued their upward trajectory, but “day 1” value leakage capacities held steady.
   
• Mixed results for sponsor-friendly terms. Prevalence of alternative “not made worse” test increases for ratio debt and for ratio-based investments baskets. “Pick your poison” and multi-toggles also rise, though super-growers become less common in the face of investor pushback.
   
• Sponsors seek to control the vote. Sponsors’ attempts to include anti-cooperation agreement language were rejected by investors.
   
• Investor pushback continues to be strong. Investors actively pushed back and were successful in resisting some of the more borrower-friendly terms, but an increase in LBO activity and full refinancings have given sponsors the opportunity to push for greater flexibility.
   
• Portability features become more common. Portability becomes more popular as sponsors look to facilitate their exits.

This year-end wrap examines covenant trends in the European broadly syndicated leveraged loan, or BSL, market in 2025 and what we expect to see in 2026.

Our 2025 wrap for the European high yield market is available HERE, our summary of key European LMEs in 2025 is HERE, Part 1 of our 2025 EMEA distressed and restructuring review is HERE and Part 2 is HERE, and our wrap on English Part 26A restructuring plans is HERE.

2025 European Leveraged Loans Primary Market Issuance

Leveraged Loan Market Volumes Increase
The European BSL market was off to a strong start in 2025, with a total volume of deals for Q1 2025 of €117 billion, significantly higher than the €70 billion seen in Q1 2024. There was a general perception that the economic environment was improving and an expectation that businesses would benefit from lower interest rates and falling inflation.

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Activity in the market came to an abrupt halt when U.S. President Donald Trump announced ‘Liberation Day’ on April 2, 2025, with the imposition of wide ranging tariffs on imports to the U.S. What was initially perceived by markets as a cliff edge, however, turned out to be little more than a roadbump, as the tariffs were paused and investors returned to the market, shrugging off their impact.

In spite of the temporary slow down in deal flow in Q2, when volumes fell from €132 billion in Q1 to €56 billion, there was a record volume of leveraged loans in 2025 at €306 billion, with a particularly strong flow of deals in Q3 of €83 billion.

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Use of Proceeds – Repricings Driving the Market
The vast majority of activity was driven by repricings, refinancings and amend-and-extend transactions, representing more than 80% of the market. M&A activity saw a resurgence and increased significantly to €41.5 billion in 2025, almost double the volume of deals in 2024, although it represented only 13.3% of the total market. Dividend recaps doubled in 2025, accounting for 3.6% of the market or a total of €11.1 billion compared with 2024 where they represented only 1.6% of the deals.

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Pricing Down
Having fallen throughout 2024, margins for leveraged loans continued their downward trajectory, dipping to 343 bps in March, and settling around 360 bps at the end of the year. Borrowers have been seizing the opportunity to reduce their cost of funding by repricing their debt.

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Covenant Capacities – Debt Capacities Rise
Capacities for debt incurrence in financings for all deals (excluding add-ons and repricings) were considerably higher in 2025 than in 2024, increasing by 13% on average. By contrast, capacities for value leakage were consistent with the levels seen in 2024. It should be noted that capacities calculations do not include accrued capacities under backdated baskets, which can be considerable.

Loan Scoring
We score loans on a range from 1 to 5 using our proprietary scoring system, with 1 being the most protective for lenders and 5 being the least protective for lenders.

Deals in 2025 scored an average of 3.43, with a median score of 3.46. The average score is only 0.04 higher than the average score for 2024. For LBOs and full refinancing, there was a small reduction in the average score from 3.48 to 3.45.

We score term sheets and initial drafts of the facilities agreements and by comparing the initial loan score with the loan score given to the final documentation, gives us some indication of the impact of changes made during the syndication process. The average reduction in scores between the initial and final score was 0.21, up from 0.15 seen in 2024, which indicates that investors achieved meaningful changes.

The highest score was 4.46 for Alvest, an LBO by PAI Partners in November and the lowest score for an LBO was 2.90 for HongShan Capital Group’s acquisition of Marshall.

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To read the full story, please reach out to [email protected]