European direct lending issuance slowed year-on-year in the second quarter, chalking up just 136 deals. This was on par with the first quarter but only half the number signed in the second quarter of 2022.

The volume of direct lending facilities issued paints a more severe picture than looking by deal count alone, having fallen to just EUR 8.5bn in 2Q23. For context, the same quarter last year was the largest on record at EUR 51.3bn, representing over an 80% drop year on year.

The second quarter of last year was also the quarter that direct lending reached its zenith as a proportion of the leveraged market, including institutional loans and high yield bonds. This has since slid from its peak of over 50% to just 19% in 2Q23.

While 1H23 results look disappointing, it is worth remembering that current activity levels sit in the shadow of record performance and unparalleled growth of the direct lending market over the past few years. The fact that activity is only now dipping is a testament to the strength of the asset class up to this point, having not just survived a highly volatile macroeconomic environment, but thrived in it.

Looking towards the second half of the year, the softening in issuance is likely to continue as M&A activity remains muted, however the depth of the private credit market means the volume of add-ons are likely to keep the market ticking over until a new wave of M&A hits ahead of a recovery in the global markets.

In the 1H23 rankings, Ares is leading the overall Western European table with 23 deals equating to a 9.5% market share. Following closely behind are Eurazeo on 20 deals and Tikehau IM with 18 deals. Fourth and fifth are currently tied with 13 deals each from CVC and HayFin.

The large-cap rankings was also led by Ares having signed 14 deals, with CVC taking a close second slot with 13 deals and KKR Credit in third with eight deals.

The mid-market is led by Eurazeo’s 17 deals, while Tikehau IM and Barings Direct Lending have secured 12 and 10 deals respectively so far in 1H23.

And in the small-cap rankings Apera takes the lead with 11 deals, followed by Fiduciam with eight deals and Investec Private Debt in third, having signed six deals.