Europe right now presents one of the vital structurally sound credit score environments amongst developed markets, opposite to in style perception, based on KKR.
KKR has been actively investing throughout the area for over 25 years, constructing native experience in non-public fairness, actual property, and credit score.
The beginning of 2025 has seen a significant pickup in exercise throughout Europe, it identified. Following a muted 2023 and uneven 2024, many sponsors and issuers have returned to the market with renewed inspiration and urgency.
Within the newest replace from Michael Small, companion within the agency’s credit score and markets enterprise, he mentioned headwinds resembling a slowdown in M&A exercise and renewed considerations over commerce coverage – most just lately from the sharp tariff “Liberation Day” escalation – will not be main considerations for Europe’s non-public credit score sector.
They “have added to broader market volatility and uncertainty, however don’t seem like slowing down the area’s momentum”, he mentioned.
In actual fact, European excessive yield and leveraged loans have outperformed their US counterparts throughout the current market sell-off,” Small identified.
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One purpose for this relative stability, based on KKR’s evaluation, is the decrease proportion of each day liquidity automobiles, resembling mutual funds and ETFs, within the European market.
This, Small mentioned, has helped scale back the chance of sharp, flow-driven drawdowns that may be triggered by compelled promoting in additional retail-heavy markets.
He pointed to a current non-public fairness deal for KKR to amass Karo Healthcare from EQT in a take-private transaction. Whereas not an IPO, Small mentioned the deal displays a “clear market urge for food for high-quality European property”, and speaks to investor conviction regardless of macro uncertainty.
“Simply as telling is the anticipated financing strategy, which is prone to contain direct lenders, underscoring the rising function of non-bank capital suppliers as conventional financial institution urge for food goes off danger,” mentioned Small.
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He pointed to Europe’s comparatively conservative use of leverage, significantly on the sovereign and company ranges, as a specific energy, with the tone set for a capital system that “rewards prudence and long-term worth creation”.
KKR has additionally beforehand highlighted the resilience of the UK’s services-driven financial system as additional reinforcing these alternatives.
That is particularly the case in areas resembling monetary {and professional} providers, which, Small identified, “have confirmed comparatively resilient even amidst renewed tariff-related uncertainty”.
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As banks proceed to pivot away from sure capital-intensive actions, non-bank lenders with the flexibleness to step in are nicely positioned to seize elevated alternatives to offer financing on beneficial phrases, Small mentioned.
“This evolving regulatory backdrop, coupled with what we imagine to be an undervalued area, reinforces the rising relevance of European leveraged credit score, direct lending, junior debt and different structured capital options as complementary parts of considerate portfolio building,” he added.