Leveraged loans, excess capital and few deals play in favour of companies

A large amount of capital available to banks and funds on the one hand, few opportunities for use in the real economy on the other. The cocktail that threatens to go down the drain for private credit operators in the US is actually being served in Europe, where everyone is quick to assure that the market is different. There is certainly no need to raise the alarm on this side of the Atlantic as well, but the phenomenon deserves attention and should certainly not be underestimated.

Confirmation comes from the Debt Advisory Lender Survey 2026 conducted by Clearwater by interviewing 168 players, spread across banks and debt funds active in the leveraged loan market in Continental Europe and the UK. The annual survey conducted by one of Europe's leading independent corporate finance companies focused on the mid-market reveals in no uncertain terms how the world of leveraged finance is progressively changing its skin.

In fact, the imbalance between supply and demand, with the coffers of large debt funds filled through intensive borrowing as opposed to a limited presence of extraordinary transactions, creates the best conditions for "a significant shift towards more borrower-friendly terms" in terms of leverage, pricing and flexible terms.

Bargaining power is therefore progressively shifting into the hands of corporations and private equity funds seeking the resources to finance their acquisitions, and the most immediate consequence has been a drastic reduction in profits for lenders. "Sixty-nine per cent of those surveyed in Europe," Clearwater notes, "reported reductions in margins and almost half of these even reported a contraction of more than 50 basis points. The compression would result in this case precisely from the 'imbalance between supply and demand', caused in turn by the rarefaction of M& A processes.

Italia fits right into the European picture, showing a leveraged finance market "characterised by solid fundamentals," emphasises Michele Castiglioni, associate partner and head of debt advisory at Clearwater Italia, a company that has been active in the sector for around six years and that counts around 30 closed transactions for a countervalue of over EUR 1.3 billion, "but also by growing competition between operators and a progressive evolution towards more flexible financing structures. In our country, however, the challenge for those involved in allocating money appears even more complex, with a market context 'characterised by increasing competitive pressure'.