Europe immediately presents probably the most structurally sound credit score environments amongst developed markets, opposite to standard perception, in keeping with KKR.
KKR has been actively investing throughout the area for over 25 years, constructing native experience in personal 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, accomplice within the agency’s credit score and markets enterprise, he stated headwinds similar to a slowdown in M&A exercise and renewed considerations over commerce coverage – most not too long ago from the sharp tariff “Liberation Day” escalation – are usually not main considerations for Europe’s personal credit score sector.
They “have added to broader market volatility and uncertainty, however don’t look like slowing down the area’s momentum”, he stated.
In reality, European excessive yield and leveraged loans have outperformed their US counterparts through the current market sell-off,” Small identified.
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One cause for this relative stability, in keeping with KKR’s evaluation, is the decrease proportion of day by day liquidity autos, similar to mutual funds and ETFs, within the European market.
This, Small stated, has helped scale back the danger of sharp, flow-driven drawdowns that may be triggered by pressured promoting in additional retail-heavy markets.
He pointed to a current personal fairness deal for KKR to amass Karo Healthcare from EQT in a take-private transaction. Whereas not an IPO, Small stated 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 method, which is more likely to contain direct lenders, underscoring the rising position of non-bank capital suppliers as conventional financial institution urge for food goes off threat,” stated Small.
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He pointed to Europe’s comparatively conservative use of leverage, notably on the sovereign and company ranges, as a selected 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 economic system as additional reinforcing these alternatives.
That is particularly the case in areas similar to 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 pliability to step in are effectively positioned to seize elevated alternatives to offer financing on beneficial phrases, Small stated.
“This evolving regulatory backdrop, coupled with what we consider 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.
