European collateralised loan obligation (CLO) issuance accelerated in the second half of the year, while direct lending activity cooled, according to PitchBook LCD.
European CLO new-issue volume reached €30.9bn (£26.4bn) from 74 deals in the first half of the year, slightly ahead of the €30.1bn generated from 69 deals during the same period last year, according to PitchBook’s quarterly European credit markets wrap.
The firm attributed the increase in issuance to strong demand for rated CLO liabilities. However, it warned that conditions for managers are “becoming increasingly challenging”, with asset spreads continuing to compress amid a fresh wave of loan repricings and around half of the CLO-favoured loan market now trading above par.
In contrast, estimated direct lending volumes cooled in the first half of the year as investors broadly moved towards reducing risk exposure.
PitchBook found that, by the end of the period, direct lending volume and deal count had fallen to their lowest levels since the first and third quarters of 2024 respectively, according to PitchBook LCD.
Year-to-date, deal count has declined by 23 per cent and estimated volume by 35 per cent compared with the same period last year, as 2026 brought broad-based derisking across global credit markets driven by artificial intelligence (AI) concerns and geopolitical uncertainty.
Read more: Managers hunt for software winners and losers amid AI panic
Growing fears that AI could disrupt the software sector, an area where private credit has significant exposure, have recently unsettled the market, contributing to increased redemptions from non-traded business development companies.
Overall, PitchBook said these pressures had created some “nervousness” among investors committing capital to European direct lending funds. However, market participants maintain that resources remain plentiful, with private credit funds continuing to raise sizeable pools of capital and lenders still eager to deploy it.
PitchBook also highlighted an increasing bifurcation in the market, with participants saying their conviction is becoming concentrated around a narrower group of assets.
Read more: Goldman BDC bucks wider redemption trend
