Syndicated debt markets in Europe have seen “meaningful growth” so far this year, despite short-term volatility triggered by geopolitical uncertainty, according to Baird.

Primary issuance year-to-date in syndicated debts markets is up 34 per cent versus the same period in 2024, even though no new issuance hit the market in the three weeks following US President Donald Trump’s “liberation day” tariff announcements.

However, since that hiatus, single B credit spreads and secondary pricing have nearly returned to pre-April levels, underscoring short-term volatility in syndicated markets, according to Andrew Lynn, managing director in Baird’s private capital markets group and head of debt advisory in Europe.

“Private direct lenders have once again capitalised on this volatility, stepping in where syndicated markets paused,” he said, citing as an example KKR’s acquisition of Karo Healthcare.

He said that even though some funds have been able to “look through the headlines” and commit to transactions when the syndicated market was challenging, “there is naturally a greater scrutiny of borrowers directly impacted by known or potential tariffs and lenders are also mindful of the impact on borrowers’ clients and their ability to navigate or absorb changes”.

Lynn also pointed to extended hold periods as one of the key themes he is watching as European debt markets navigate the uncertainty of 2025.

Macroeconomic pressures and geopolitical risks are behind the lengthening hold periods in private equity portfolios, with the median in Europe having increased from approximately five years in 2021, to six years in 2024.

“Clearly, this also has a direct impact on direct lenders’ portfolio hold periods; whereas typical loan hold periods used to be three years or less, funds are now assuming a further 12 or 24 months on average,” Lynn said.

While loan maturity outcomes depend on borrower performance, Lynn noted that “fund-specific constraints also play a role”, such as funds being outside their investment period, and that sponsors, in turn, may hesitate to extend hold periods due to carried interest considerations and fund structuring limits.

Trying to refinance deals from an old fund using capital from a new fund could require a change of ownership or a switch into a continuation vehicle, “otherwise it’s likely that a third-party refinancing is needed”, he said.

“Like banks, direct lenders are cautious about refinancing incumbent lenders out of credits, particularly given the efforts usually made to maintain portfolio credits. Therefore, the bar is higher and may call for new layers of capital or indeed alternative capital to provide a solution,” Lynn added.