Europe’s Leveraged Loan Market: A Risk Checklist for 2026
The European leveraged loan market faces headwinds from higher interest rates, tighter liquidity, and shifting investor protections. In our opinion, making disciplined investment management essential for navigating these dynamics.
Key takeaways
- Focus on high-quality credits: prioritise loans with strong sponsors, moderate leverage (4.0x–5.0x earnings before interest, taxes, depreciation and amortisation [EBITDA]) and senior secured status to mitigate downside risk in a volatile market.
- Monitor market signals: secondary loan prices and collateralised loan obligation (CLO) flows are often critical early indicators of stress, providing actionable insights for proactive portfolio adjustments.
- Diversify strategically: balance exposure across industries, geographies and maturity buckets to reduce concentration risk and enhance portfolio resilience.
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