European Debt Markets Q3 2025 – Carlsquare Insights

In this first Carlsquare Debt Advisory issue, we share our analysis of European mid-market financing conditions — covering direct lending, leveraged loans, and the growing relevance of Nordic bonds. Despite ongoing macroeconomic uncertainty, the European debt market remains resilient. Deal activity is robust, with investors adapting to a more stable interest rate environment.

Key Insights – Q3 2025

Macroeconomy: Eurozone GDP grew modestly in Q3 2025. The European Central Bank (ECB) kept rates unchanged at 2.0%, signaling price stability and reduced inflationary pressure.

Lending Activity: Direct lending and traditional bank lending both increased significantly in volume. The average margin from direct lenders stands at ~529 bps and ~377 bps from bank lenders.

Market Sentiment: Investor sentiment remains cautious despite stable fundamentals — mainly due to tariff risks and ongoing geopolitical tensions.

Overview on current financing conditions in the European market

EURIBOR vs. Forward Expectations

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European Corporate Yields / BB & B Rating

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Carlsquare Commentary – Debt Market Developments in Germany and Europe

The German and European M&A market continues to show momentum, driven by active buy-and-build strategies.

Direct lenders have reduced unitranche margins to approximately 525 bps in the German mid-market, reflecting higher competition and lower risk premiums.

The European leveraged loan market, tracked by PitchBook LCD, recorded a substantial uplift in Q3 2025 with EUR 29.4bn in new issuances versus EUR 14.3bn in Q3 2024. Average margins decreased from 397 bps to 377 bps, while average leverage remained stable at 4.7x EBITDA.

The Eurozone direct lending market reached EUR 30.5bn year-to-date, up from EUR 24.0bn in 2024 (+27%). Deal count rose 38% YoY, with a typical summer slowdown in August followed by a rebound in September.

Economic Environment – Eurozone Outlook

The Eurozone economy maintained moderate but positive growth through Q2 2025.

• Germany: GDP contracted by 0.3% after +0.2% in Q1, driven by reduced investment activity.
• Inflation: Stabilized at 2.0%, aligning with the ECB target.
• Outlook: With fiscal support and a solid labor market, growth is expected to stabilize, though energy costs and global trade tensions remain downside risks.

Topic of the Quarter: Nordic Bonds

What are Nordic Bonds? Nordic bonds are corporate debt instruments, typically Investment Grade or High Yield, listed on the Oslo Stock Exchange, Nasdaq Nordic, or the Frankfurt Stock Exchange.

Typical Structure:

• Issue volume: EUR 30–300m
• Nominal amount: > EUR 100k
• Tenor: 3–6 years
• Coupon: floating or fixed (typically floating)
• Currency: SEK, NOK, EUR, USD, or DKK

Advantages:

• Flexible terms, limited covenants, and no mandatory amortization
• Fast, cost-efficient issuance with no rating required
• Broader investor base including Nordic and international funds

Market Trends:

In 2025, Nordic bond issuance has remained strong, reaching EUR 30.4bn (LTM October 2025).

1. Average deal size: EUR 59m (+12% YoY)
2. Non-Nordic issuers: 36% of total volume
3. Private equity-backed issuers: 32% share
4. High-yield spreads tightened from 553 bps to 505 bps

Outlook:

Nordic bonds continue to expand funding options for mid-sized and growth companies across Europe. While they complement traditional leveraged finance, they are likely to remain a flexible alternative instrument, particularly for cross-border issuers seeking speed and investor diversification.

For any questions feel free to reach out to our authors Daniel Gebler, Head of Debt Advisory, and Constantin von Wiedersperg, Director.