Results from LCD’s H1 2026 European leveraged finance survey point to a market that expects broad stability in credit fundamentals, even as sentiment remains fractured on the macro risks most likely to shape performance over the next six months.
Survey highlights:
Leveraged loans expected to outperform high yield in H2 2026.
After a sharp rise in the ELLI distress ratio, respondents see conditions stabilising.
European loan index predicted to outperform its US counterpart.
Triple-C loans expected to underperform other rating cohorts.
With 60% of the vote, survey respondents expect the Morningstar European Leveraged Loan Index (ELLI) to outperform the Morningstar LSTA US Leveraged Loan Index over the next six months.
At the year-end 2025 poll — taken before the mass unwinding of software risk took hold — respondents had broadly expected the US benchmark to outperform Europe, which it did in the first quarter. As AI fears gripped the markets, however, the software-heavy US index recorded a year-to-date return of 1.32% at the end of June, versus 1.82% for the European index.
Respondents strongly favour floating-rate risk over high yield bonds for the second half, with 80% expecting loans to outperform high yield. This preference comes as markets remain uncertain over the future path of central bank rate cuts, keeping the floating-coupon carry advantage offered by loans intact.
Funding landscape
As for pricing, a clear majority of respondents (80%) expect European credit spreads to stay broadly unchanged over the next six months, with the remaining 20% anticipating moderate widening. Notably, no respondents forecasted either significant widening or any tightening (whether moderate or significant) — pointing to an expectation of spread stability at current levels rather than further compression or a risk-off repricing.
In addition to funding costs, buyout structures are expected to hold steady through the second half of the year, with the majority of survey respondents forecasting no change in leverage multiples or equity contributions.
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There was a similar expectation for average purchase price multiples of European buyouts, with the majority of respondents also predicting no change on this market measure.
Constructive thinking
On the deal-flow side, sentiment is more constructive. Some 60% of respondents expect M&A-related issuance via broadly syndicated loans to rise in the second half — but not by enough to improve the current technical supply shortage.
