European Direct Lender Portfolios Face Increased Stress in Q2 as Macro Headwinds Add to Existing AI Uncertainty; BDC Nonaccruals Surge Globally in Q1

Reporting: Sidney Watson, Annabel Kellett, Oscar Laurikka Relevant Items: Direct Lending Stress Monitor Q2 2026 (Excel) European BDC PIK Loans PCDO Dashboard Following a first quarter dominated by fears over an AI-driven software selloff, European lenders are not yet out of the woods, contending with further uncertainties from fresh geopolitical and macroeconomic pressures. But while stress has risen across European private credit markets, with the percentage of private credit loans with a fair value less than 90 in the Kroll StepStone increasing to just under 6%, mid-market names seem to have been marginally more insulated.   The war in Iran rattled risk sentiment across the board earlier in the year, and while a prolonged closure of the Strait of Hormuz appears off the table (for now), the episode reinforced broader market uncertainty around energy prices and inflation. It is also unclear where we are in the rate cycle; the European Central Bank raised rates by 25 bps just days before the ceasefire extension was agreed, its first hike since 2023, with another on the way if the bank sees more evidence of eurozone inflation spreading beyond energy. This strikes another blow to investor confidence, alongside the valuation disconnect on 2021/22[...]