KBRA Releases Research – Private Credit: Across the Atlantic—Comparing U.S. and EU/UK Direct Lending

KBRA reported that its assessed portfolio of EU and UK middle-market direct-lending borrowers has expanded more than fivefold since 2022. In the 12 months ended June 30, 2026, the cohort reached 465 unique obligors across more than 50 managers and 60 KBRA-rated transactions, underscoring the rapid growth of European private credit relative to its more mature U.S. market.

Analysis

The investable implication is less about near-term credit performance and more about fee-related AUM duration. European middle-market direct lending broadens the addressable market for scaled alternative managers, with ICG.L, BX, KKR, ARES and OWL best positioned to monetize origination, underwriting and insurance-capital relationships. If fundraising converts into deployed capital, management-fee revenues arrive before realized credit gains, while incentive fees remain a later-cycle upside rather than a base-case assumption.

The second-order risk is that rapid lender proliferation weakens covenants and compresses spreads before defaults reveal underwriting dispersion. European private-credit marks are less transparent and less frequently tested than broadly syndicated loans; a modest deterioration in EBITDA, rising payment-in-kind income, or extension activity could therefore produce delayed NAV pressure and constrain new fundraising. This is a 6-18 month risk, not a days-to-weeks catalyst; the immediate market impact on diversified alternative-asset managers is likely limited.

The contrarian view is that listed alternatives may already receive credit for European deployment growth while investors underprice the cost of hedging floating-rate liabilities and currency exposure. Banks such as DBK.DE, BARC.L and UBS may lose higher-yielding middle-market share, but they retain transaction deposits, payments, FX and sponsor-banking economics; private-credit substitution is not a clean zero-sum revenue transfer. The thesis turns negative if European leveraged-loan spreads widen materially, private-credit fundraising slows, or managers disclose rising non-accruals/PIK as a share of portfolio income.

Key Decisions for Investors

• Maintain a 6-12 month quality-bias long in ICG.L versus a basket of smaller, less liquid European alternative managers; ICG's local origination scale and permanent-capital mix should translate market expansion into fee-related earnings with less dependence on realizations. Reassess if fee-paying AUM growth disappoints for two consecutive reporting periods or credit-loss provisions rise materially.
• For U.S.-listed exposure, prefer ARES or BX over OWL on a 12-month horizon: the former pair have more diversified fee streams and are better insulated if direct-lending spreads compress. Do not add aggressively until fundraising/deployment disclosures confirm that European growth is incremental rather than capital reallocated from U.S. strategies.
• Avoid a broad short in European banks solely on private-credit disintermediation. Instead, monitor DBK.DE and BARC.L sponsor-finance fees and loan-growth commentary over the next 2-3 earnings cycles; a sustained loss of sponsor-wallet share would create a cleaner relative-value short versus ICG.L.
• Set a credit-quality alert rather than buy protection immediately: if European direct-lending vehicles report rising PIK income, covenant resets, or non-accruals alongside a 75-100 bp widening in European leveraged-loan spreads, reduce alternative-manager longs and consider short exposure through HYG or EU high-yield credit proxies.