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Analysis European private credit
Europe sees new 1Q direct lending record
by Ben Watson, Debtwire
Despite exposure to software companies and worries about fund redemptions, European direct lenders made a strong start to 2026 — and the market is optimistic about the rest of the year
European direct lending has showcased solid growth so far this year, despite a turn in sentiment that’s produced heated warnings and a barrage of negative headlines.
First quarter European volume reached EUR 31.7bn — a record for any first quarter and the third highest quarterly total overall. Deal size carried the weight as transaction numbers fell to a two-year low.
Market resilience was the overriding theme of the quarter. The speedy improvement in artificial intelligence weighed on the sector, especially after Claude Code was introduced in February. But issuance volumes picked up despite this so-called SaaS-pocalypse.
European direct lending volume
Source for all data: Debtwire
264
Number of new deals in 1Q26 — an 8% fall versus 1Q25
366
Average annual deal count in past four quarters
The market also shrugged off agitation over fund redemptions, along with persistent concerns over defaults and fraud among borrowers.
Large-cap borrowers remain an important driver of activity, accounting for 55% of total volume in 1Q26. Even so, while large-cap financings still dominate in value terms, the market has gradually shifted back towards the mid and lower mid-market in recent years.
European direct lending vs public leveraged market
European direct lending sector breakdown 1Q26
Source for all data: Debtwire
Rise of the refinancings
Refinancings have become increasingly prominent. They now represent 42% of activity by volume. However, new-money issuance, led by LBO financings, has remained close to the strongest levels seen over the past year.
31.7
bn
€
Deal volume in 1Q26 — a 55% rise versus 1Q25
29.2
bn
€
Average annual deal volume in past four quarters
Sponsor-backed deals continue to dominate direct lending, accounting for 78% of volume so far in 2026. That trend is consistent with the broader migration of buyout financing away from public syndication and toward direct lending in recent years.
Once again, amid a period of dislocation, direct lending is thriving. Pipelines may be shifting away from software, but market participants say incoming opportunities are already beginning to return, with many lenders looking ahead to a more productive second half of 2026.
