A widening gap is emerging between the two largest private credit markets. In the United States, the strains that practitioners spent much of 2024 anticipating have begun to surface in the data. In Europe — and in the mid-market in particular — the picture is markedly different. The temptation is to read the European position as simple resilience. The more useful reading is that the market is bifurcating, and that the dispersion between strong and weak credits is widening faster than the headline figures suggest.
The American signal
The clearest deterioration is on the other side of the Atlantic. US distress measures have moved sharply over the past year, and the rise would be steeper still were it not for the prevalence of liability management exercises. By some estimates, LMEs are now masking close to half of what would otherwise register as outright defaults. A default deferred through an amend-and-extend or a priming transaction is not a default resolved; it is a maturity, and often a loss, pushed into a later year. Non-accrual positions concentrated around 2027 maturities point to where that reckoning is likely to land.
None of this amounts to a systemic event. But it does mark the end of the period in which private credit could be discussed as a single, uniformly performing asset class. The cycle has begun to separate managers who underwrote discipline from those who underwrote growth.
The European counterpoint
European private debt has not followed the same path. Fundraising reached new highs in 2025, with European-focused vehicles raising materially more than the prior year. Deal volume has held up, supported less by new leveraged buyouts than by the refinancing of the 2021–2022 vintage as it reaches its maturity wall — a dynamic that, for well-advised borrowers, represents opportunity rather than threat. The maturity wall is not a cliff; it is a calendar, and the borrowers who engage with it early and on their own terms are the ones who refinance well.
France is the most striking case. It now accounts for close to a quarter of European private debt volume and continues to grow at a double-digit annual rate, even as the United Kingdom plateaus. This is not a cyclical accident. It reflects a financing market in which mid-market companies — many of them sponsorless — have steadily moved away from bank balance sheets toward direct lenders, and in which the legal and procedural infrastructure for working through stress, where it arises, is more developed than is often assumed from London.
This is the substance of what commentators have begun to call the European exception. It is real. It is also frequently overstated.
The bifurcation beneath the surface
Aggregate resilience conceals a more important development: risk is rising, and it is rising unevenly. European default risk has drifted higher over the past year, and the spread between the strongest and weakest credits has widened. The market is no longer pricing private credit as a homogenous category. It is increasingly pricing the difference between a well-structured, appropriately levered, covenanted mid-market financing and a stretched one.
That dispersion is visible in structure as well as in pricing. First-lien unitranche continues to dominate new origination, but the proportion of deals completed at higher leverage multiples has climbed quickly, and the gap between conservative and aggressive structures is now wide enough to matter at the level of individual transactions. In a market that is averaging well, averages are precisely what borrowers and their advisers should stop relying on.
What it means for borrowers
The practical conclusion is not that Europe is safe and America is not. It is that the return to dispersion rewards selectivity. When capital was abundant and undifferentiated, the value of knowing which lender to approach, with what structure, at what point in a fund's deployment cycle, was modest. In a bifurcating market it is decisive. The same transaction taken to the wrong ten lenders, or to the right lenders at the wrong moment, produces materially worse terms — or no terms at all.
For mid-market and sponsor less borrowers in particular, this is the moment at which disciplined lender targeting begins to outperform broad distribution. The objective is not to reach the largest possible number of funds. It is to reach the few whose mandate, currency capability, sector appetite and current deployment genuinely fit the situation, and to approach them with a structure that anticipates how a credit committee will read it in a more discerning market.
The European exception is durable enough to plan around. But it is an exception that increasingly belongs to those who treat private credit as a market to be navigated with precision, rather than a source of capital to be canvassed at scale.
Laetitia Costa, Founder
LC Advisory is a trading name of LC Global Advisory Ltd, a company registered in England and Wales under number 13934531.
