The spread compression observed in Q4 2025 reflects both increased competition among direct lenders and improving credit metrics across European sponsor portfolios. However, our analysis suggests that current pricing leaves limited room for further tightening.

Our proprietary model indicates fair value spreads of E+500-525bps for core mid-market transactions, suggesting current levels are approaching equilibrium for this cycle.

Covenant trends continue to evolve, with documentation increasingly resembling broadly syndicated loan terms. The prevalence of covenant-lite structures has risen from 30% to 45% over the past two years.