The penetration of private credit in Southern European markets continues to gain momentum, with several major lenders opening offices in Spain and dealflow increasing even in the face of economic shocks.

Number of funds focused on Southern Europe to close since 2017

Total amount targeted by Southern Europe-focused funds in market

Javier Castillo, who is based in Madrid with fund manager Kartesia and is responsible for senior opportunities in Iberia, says: “Both local and international sponsors have remained quite active in this region, with international sponsors increasingly looking into Spain’s mid-market as they diversify away from historically core markets like the UK and France.

“That growing interest, combined with local private equity funds and SMEs increasingly eager to work with private lenders and banks reduced capacity to cover the mid-market space, has led to quite a robust level of activity since September 2020 and so far in 2022.”

Tikehau Capital, which has had a physical presence in the Spanish market since 2015, also sees huge growth potential for direct lending. “Although banks remain the main source of debt funding in Spain, there are an increasing number of cases where private debt is the preferred source of financing, either by itself or to complement a bank financing,” says Carmen Alonso, head of UK and Iberia at the firm.

In Italy, Arrow Global’s head of credit strategy, Daniele Patruno, sees an array of opportunities: “We see space for growth in lending to real estate development projects, mainly residential, hotel refurbishments, office upgrades to ESG standards and logistics.” Others include energy and corporate restructuring solutions with capital provided by special lenders, sometimes alongside carefully selected equity partners. “Competition can be fierce, especially in top locations and high-quality assets, but flexible and innovative investors can find space to grow.”

Portugal is still at an earlier stage of development: “Contrary to what happens in more established markets, the private credit market in Portugal is still in its early days. That said, we are seeing more activity in the past couple of months as new players have come into the market looking for opportunities, especially in the real estate hospitality finance space,” says João Bugalho, CEO of Arrow Portugal.