European direct lending volume rebounds, amid support for software names
Taron WadeTue, August 18, 2026 at 12:35 PM GMT+3 5 min read
The most recent direct lending data shows a boost in the deal count and estimated volume in the European market, including the first direct-lending takeout of a broadly syndicated loan since the third quarter of 2025, as well as renewed support for lending to the software sector.
The data is also beginning to indicate some spread widening and a migration of borrowers to the broadly syndicated loan market, with BSL refinancing activity jumping to the second-highest quarterly reading since LCD began tracking this data, according to the latest European Private Credit Monitor.
The direct lending deal count rose to 35 in the last three months to the end of July, while the estimated volume increased to €9.8 billion — from 32 and €8.5 billion in the second quarter, respectively. Meanwhile, PE-backed estimated direct lending volume grew to the highest level since the end of 2025 on the three-month measure.
However, the estimated volume and count for direct lending deals in the year to end-July still lag the rate tracked in 2025, with these measures trailing by 29% and 19%, respectively. The trend is the same for sponsor-backed deals, which are running 24% lower for estimated volume and 19% lower by number of transactions.
Along with the general recent uptick in activity, interactions between the BSL and DL markets have seen a boost over the past three months, with the direct lending market demonstrating support for software companies despite general market nervousness over this sector.
Dutch enterprise software company Unit4, for example, refinanced its syndicated term loan B via a club of direct lenders including Arcmont, according to sources. Unit4's term loan B due June 2028 dated from a facility priced in 2021 to support TA Associates' acquisition of the firm from Advent, and stood at €875 million following a 2024 upsize. In secondary, the loan fell into the mid-90s during the software sell-off in February, before recovering to trade around par by the end of April.
Big deals
This transaction — along with direct lenders supporting syndicated borrower Cegid's acquisition of Shine with a €1.1 billion facility in June — shows a resurgence in bigger transactions across the year so far. Cegid's loan was shown to early birds but never formally launched, shifting instead to direct lenders following the sell-off in software credits from late January.
Illustrating this resurgence, the share of deals sized in the €1 billion or more category has risen to 18% in the YTD, from 14% in 2025, while the €100-349 million category, which saw a huge increase in its share to 57% in 2025, fell to 45% in the YTD. That said, the 'mega deals' of the past few years have been absent in 2026, with none of the transactions tracked so far in 2026 making the top 10 list in terms of deal size.
In addition to the return of bigger deals, the data supports the staying power of direct lending to software companies in Europe. The broad Professional & Business Services category is still the most active sector in Europe in the YTD, with a 25% share of deals.
Drilling down on a more granular basis, the Software and Data Integration category is still in the lead with a 22% share, with Business Services taking a 20% slice.
Price premium
Market participants say European direct lenders are charging a premium to finance software buyouts, as AI disruption concerns and a shrinking pool of willing lenders reshape pricing in the sector. Indeed, sources have told LCD news that software credits in the middle and upper middle market are now printing at E+525-550, up from around E+475 six months ago, while adding that deals in other sectors are pricing in an E+475-500 range.
PitchBook LCD's pricing data shows that although median spreads on all deals have continued to decline in the YTD, some borrowers have needed to price wider, pulling up the average level to 529 bps. This is the first widening in overall average spreads since LCD began tracking this data.
Market participants point out that current pricing is still well below the peak of the last cycle, when margins on software deals priced above 600 bps in 2022 and 2023, before compressing sharply. More of this software supply could follow, and a debt adviser told LCD news that their firm is working on two software financings — both priced at E+525.
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BSL bites
Despite the recent resurgence in direct lending activity and the strength shown by these players when it comes to financing the out-of-favour software sector, the number of borrowers using the BSL market to refinance their direct loans has suddenly jumped.
The volume of DL to BSL refinancings over the last three months was a chunky €4.8 billion — versus €1.7 billion in the second quarter, and €1.3 billion in Q1. This tally is higher than all but one quarterly reading on this measure since LCD began tracking the data.
Looking at recent transactions, two deals closed last week for a total volume of €1.85 billion, from French wealth manager Groupe Premium and US-based pharma group CDMO Catalent, which closed a €1 billion tranche as part of a $1.4 billion takeout.
Both deals saw strong demand in the syndicated markets, as this activity has been a better-than-expected source of new money recently. The weight of CLO issuance in Europe this year has kept demand strong for syndicated loans, and with a full M&A resurgence still out of reach, new supply is always welcome.
Lastly, July saw the share of acquisition-related deals in the market fall below 70% in the YTD, with the sponsored portion of the market also showing a drop below the same level. However, the acquisition share for non-sponsored deals continues to rise, and reached 57% in the YTD.
Featured image by Yuichiro Chino/Getty Images.
This article originally appeared on PitchBook News
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