The State of Private Credit in Europe (Second of a Series)

Our fondness for colorful metaphors led us, in our 2016 series, to compare European direct lending to Burger King’s new hot dog venture. The burger giant’s thesis was to apply “sixty years of flaming-grilling expertise,“ but also recognized they’d have to “chop the onions a little differently.”

Apparently, hamburger prowess didn’t translate to frankfurters. The experiment lasted six months.

Similarly, there are fundamental differences between US and European private credit markets. Banks are more “efficient” in Europe and represent a greater share of leveraged loans. And despite the toe-hold direct lenders have established there over the past decade, barriers remain.

In a recent column in Private Debt Investor, a banker referred to a survey showing 22% of private equity sponsors favored one-stop solutions, preferring bank loans instead. The rationale seems to be both a reluctance to overleverage borrowers, and comfort with their banking relationships.