Taking The Keys: A Closer Look at the European Private Credit Market

Headline default rates in private credit and syndicated loans may look benign at around 2% in 2025, but a deeper review of European credit events reveals more meaningful stress beneath the surface. Liability management exercises and debt-for-equity swaps show that pressure is concentrated in specific pockets, particularly smaller, highly levered companies in cyclical sectors such as consumer, retail, industrials, and manufacturing. Vintage analysis suggests that deals underwritten for a very different rate environment—especially 2017–2018 and 2021 vintages—have been most vulnerable as higher interest costs collided with slower-than-expected earnings growth.

Looking ahead, a “supportive but not easy” macro backdrop implies that elevated stress levels are likely to persist rather than broaden into a systemic crisis. For investors and advisors, this environment heightens the importance of manager selection, disciplined underwriting, sector and size tilts within private credit portfolios, and robust workout capabilities when lenders end up “taking the keys.”