Executive Summary

We believe that in 2025 the European leveraged loan market will broaden its appeal to investors as a significant asset class to consider. While it has been well established in the US, it has grown significantly in recent years in Europe, with its market size currently close to that of the European high yield bond market. We expect this growth trend to continue, driven by robust demand from private equity firms, as they continue to view this type of credit as a flexible source of capital to support leveraged buyouts and M&A activity.

Looking ahead, we believe the outlook for leveraged loans remains supportive, and is backed by three main favourable factors:

  • First, European leveraged loans offer relatively attractive yields in the fixed income space.
     

  • Second, the default outlook for leveraged loans remains benign for 2025. Although economic growth is lackluster and interest rates are relatively high, the default level has been dampened by interest rates starting to trend lower, and frequent refinancings taking place.
     

  • Last, in a world of concerns about higher for longer rates, investor demand for floating rate leveraged loans is set to remain high.

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