Blog Post
European direct lenders remain optimistic despite M&A slowdown, signs of stress
Oscar Laurikka, Head of Private Credit & Deal Origination - Europe
European direct lenders are starting 2026 in a positive mood. Despite a lack of new M&A to finance in 2025, the number of private credit deals increased 13% on 2024, hitting a total of 1,000 transactions.
Octus has reported on a number of pulled and stalled auctions that would have likely been financed by private credit in recent weeks including Castik Capital’s sale of German insurance broker Global Gruppe, Advent’s planned divestment of Dutch medical supplier Mediq and Astorg’s process for French ingredients maker Solina.
Nevertheless, direct lenders are confident that they will continue to find ways to deploy the capital that they have raised in recent years. This could be into the ever growing pipeline of pulled and delayed buyouts when they finally (re-)emerge, or like in 2025 it could be into their existing portfolios in the form of expansion capital and refinancings, which made up a combined 66% of deals in the year.
Despite this optimism, signs of stress in European private credit increased in 2025, according to Octus’ Direct Lending Stress Monitor. Defaults have mostly been avoided so far as discussions between sponsors and lenders have remained constructive. However, an increase in the number of private loans in nonaccrual, and the number of private credit-backed companies with less than 10% covenant headroom have led some to predict an uptick in debt-for-equity swaps in 2026.
Giving his 2026 outlook, Albacore Capital’s CIO David Allen said, “At its core, the direct lending market is a sub-investment grade market and therefore some level of defaults should be expected. Following periods of bumper issuance, like those in 2022 and 2023, it is unsurprising that the market will see an increase in defaults.”
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