As the mid鈥憏ear point of 2025 approaches, partners from Proskauer’s private capital practices hosted a thought-provoking conference with clients to consider key trends and challenges which are shaping the European private credit markets today. The conversations encompassed fund raising strategies and investor preferences, the evolving private credit financing toolkit available to private equity sponsors, and the evolution of innovative fund finance solutions. Proskauer partners engaged in lively discussions and market analysis with many of the key private credit funds, sponsors, asset managers and debt advisors in the European credit market. The conference concluded with a discussion examining the challenges and opportunities anticipated for the private credit market over the second half of 2025 and beyond.
Top 10 key takeaways
- Maturity of the asset class: The evolution of private credit into a mature complex asset class over the last fifteen years, following the global financial crisis, has been remarkable. Volatility has created opportunities for private credit funds and continues to do so. While we have seen the resurgence of the broadly syndicated loan market and high yield issuance in 2025, there is sufficient breadth in the European debt markets and demand for direct lending deals remains robust. The middle market is still predominantly financed by direct lenders. Private credit debt is no longer considered “alternative lending”, but a core financial product in the leveraged loan market.
- Stable source of capital: Sponsors are looking for a reliable and consistent source of capital. Private equity firms not only focus on their equity returns, they also value certainty on terms, pricing and deal execution, which is not always available in the public markets. Private credit has demonstrated that it is a robust business partner, available even in situations of geopolitical and market uncertainty. Private credit can differentiate itself from the public debt markets in times of volatility.
- Inconsistent M&A: The depressed M&A market continues to create challenges for private equity funds who are planning exits. Last year saw a trend of continuation vehicles being utilised to release capital and, for some credits, dividend recaps have been another avenue to generate liquidity for investors.
- Evolution of fund level financing:Increasingly sponsors are focusing on a variety of liquidity options at the fund level, where creative structuring creates low risk lending for the credit funds and liquidity for the borrower with attractive pricing. Innovation in this space is creating new opportunities and products. Fund financing now encompasses a wide range of flexible and efficient financing options from standard subscription facilities to NAV lines, GP facilities, preferred equity solutions and rated feeder structures in addition to an increasing number of collateralised fund obligation (CFO) transactions.
- Convergence of terms: As anticipated, we are seeing a convergence of deal terms with broadly syndicated deals in the mid and large cap markets. Covenant lite deals are increasingly more common in the mid鈥憁arket, with lenders often focusing on the strength of the credit and the sector rather than having a widely set and flexibly defined financial covenant. Sponsors are increasingly running dual track processes for particular credits, popular in both private and public markets, providing optionality and increasing certainty of good execution.
- US investment in the European markets: There is a trend of US sponsors looking to invest more in European assets, driven by geopolitical and economic considerations, as well as more attractive valuations in some cases. Certain sectors in Europe are less developed than in the US, such as defence, which creates growth opportunity. Recent geopolitical events have generated uncertainty in the US and seen global investors look to diversify their investments away from the US and towards the EU.
- Valuable relationships: Sponsors value their close relationship with private credit lenders, enabling them direct access to key decisions makers at the fund when challenges arise. This relationship allows lenders to provide bespoke and innovative financing solutions to sponsors.
- Fund raising: The fundraising environment has been more challenging recently and requires flexibility and innovation on product structure and strategies. Evergreen funds are now an established part of the product landscape across credit strategies.
- Growth and consolidation: Recent growth has seen the private credit market become more crowded. Some consolidation is likely. Private credit lenders need to differentiate themselves from their peers, proactively finding and creating opportunities. Several credit funds are partnering with banks successfully, which appeals to many sponsors.
- Competition drives innovation: Private credit is now about so much more than direct lending. Highly competitive environments force private credit to develop creative solutions. Liquidity is key for borrowers and therefore we are seeing creative and flexible financing products becoming more mainstream, such as the development of hybrid capital and structured financing solutions.
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Agenda & Speakers