Navigating the European leveraged finance landscape in 2026

The European leveraged finance market closed 2025 on a high note, with direct lending volumes hitting record levels and documentation practices becoming increasingly sophisticated. At the start of 2026, the market stands at a critical juncture.

Refinancing and dividend recapitalisation activity totalling €18.3 billion in 2025 has deferred, but not resolved the European market's maturity challenges[1]. With €86.2 billion of loans maturing by 2028, many from the 2021 vintage, borrowers face urgent refinancing requirements[2]. However, compressed pricing and abundant liquidity are creating attractive opportunities for well-positioned sponsors and borrowers.

Drawing on insights from across our European platform, our leveraged finance team has identified the key themes which we expect to shape the market over the coming 12 months.

Direct Lending: A Competitive Environment for Mid-Market Lending

European direct lenders approach 2026 from a position of strength, having achieved an estimated €41.4 billion in volume across 160 transactions in the European market in 2025[3]. However, maintaining this position will require continued adaptation.

Traditional banks increase competition: European banks, having ceded substantial market share to direct lenders over recent years, are demonstrating renewed appetite for mid-market lending. Improved capital positions, relationship incentives and competitive pressure are driving banks to offer aggressive terms on selected transactions. Direct lenders will face increased competition, particularly on larger mid-market deals with cross-border dimensions.

Pricing reaches new lows: The pricing compression that characterised 2025 – with median spreads falling from 600+ basis points in 2023 to 500 basis points in 2025 – shows little sign of reversing. Top-tier credits are now routinely achieving all-in pricing inside 600 basis points, with market-leading transactions pricing materially tighter. Direct lenders will need to carefully balance competitive positioning against return thresholds.

Specialisation in resilient sectors: Looking ahead to 2026, sponsors and lenders may increasingly focus on differentiation through specialisation in sectors demonstrating defensive characteristics and structural growth drivers:

• Healthcare and life sciences
• Software and technology services
• Energy transition, including renewable energy infrastructure and enabling technologies

Confronting the Maturity Wall: From Refinancing to Restructuring

2026 will mark a pivotal year in addressing the European maturity wall. Unlike 2025, when refinancing momentum was driven primarily by opportunistic repricings and dividend recapitalisations, 2026 will see a shift towards necessity-driven transactions as 2026 and 2027 maturities come into sharp focus.

A critical timeline: With market convention usually requiring borrowers to address maturities at least 18 months in advance to avoid ratings pressure, credits maturing through mid-2027 are already under the microscope with many of these situations requiring more than straightforward refinancing.

Tailored solutions required: The one-size-fits-all approach will not work for challenged credits. Instead, expect to see:

• Balance sheet resets combining asset sales, operational improvements and fresh sponsor equity
• Strategic M&A solutions, including sales to corporate acquirers willing to look beyond traditional sponsor return thresholds
• PIK toggle structures and payment-in-kind mechanisms to preserve liquidity whilst addressing refinancing needs

Regional Dynamics: Market Share Developments and the Nordic Bond Market

Direct lenders maintained and expanded their positions across key European markets in H1 2025.

Market share by geography: In 2025, debt funds defended and partially increased their market share versus banks across most key geographies. Looking ahead to 2026, these regional dynamics suggest continued strength for direct lenders across major European markets, with particularly dominant positions in Germany, the UK and Benelux, and the Nordics as a growing market.

The Nordics: The Nordic bond market underwent remarkable expansion, with corporate new issuance volumes reaching €44 billion in 2025[4]. Several key drivers underpinned this growth trajectory, including i) unrated structures, ii) lower legal fees, and iii) shorter timeframes for transaction preparation. 

Whilst the market is traditionally dominated by Nordic corporations and maritime companies, the 2024-2025 period witnessed substantial evolution in both market liquidity and investor risk tolerance. As a result, Nordic capital markets have emerged as a genuine financing option in specific contexts, irrespective of issuer geography or sector classification.

Documentation: Convergence and Innovation

European debt documentation evolved significantly in 2025, with the convergence of US and European practices reshaping the market.

Hybrid documentation emerges: European debt documentation is increasingly adopting US-style features, marking a significant shift from historically distinct regional practices. Rather than fully adopting US documentation, European lenders are now combining features from both jurisdictions to create bespoke financing packages. Capital and financial structuring has become the primary driver of documentation choices rather than deal size or the presence of a US party.

Grower baskets innovation: One notable innovation is the development of "grower baskets," which automatically increase a borrower's thresholds for incurring additional debt or making restricted payments as earnings grow.

Conclusion: Preparation and Precision

Especially for well-prepared market participants, 2026 offers significant potential as private credit capital continues flowing into European strategies, pricing remains competitive, and financing solutions are increasingly flexible and tailored. 

Our team stands ready to support your leveraged finance initiatives throughout the year ahead.