PitchBook has indicated that the European leveraged loan sector staged a solid recovery in May, largely offsetting earlier losses from 2026 amid geopolitical tensions in the Middle East and a sharp pullback in AI-related credits. According to PitchBook data, the Morningstar European Leveraged Loan Index (ELLI) posted a 0.74% total return for the month. This marked the second straight positive month and helped push the index back into positive territory year-to-date.
The research report from PitchBook added that loan prices climbed steadily, with the index’s weighted average bid price reaching 96.16 by month-end—a level not sustained since late January.
This represented a 172 basis point rebound from the March low of 94.44. Late in May, the bid briefly topped 96.19, the strongest reading since January 27.
Despite these gains, prices remain about 254 basis points below the recent peak of 98.70 hit in February 2025, and well short of the all-time high near 99 seen in early 2022.
Performance in May relied more on interest income than capital appreciation.
The market-value component (excluding currency effects) contributed 0.22%, while carry from interest added 0.52%.
This carry element, though lower than peaks in late 2023, still exceeded long-term averages.
The May return comfortably beat the index’s 12-month and 10-year monthly averages.
The gap between software credits and the broader market narrowed noticeably. Software loans, which had underperformed sharply earlier due to AI exposure concerns, returned 1.58% in May—their third consecutive gain.
PitchBook also noted in the research report that the price differential versus the full index shrank to 304 basis points from 608 basis points in February, with software bids recovering to 93.74.
This contrasts with wider dispersion seen in the U.S. market and reflects a partial healing from Q1 volatility.
Yields compressed as prices rose. The average yield to maturity fell to 6.82% from 6.93% in April, close to January levels.
Discounted spreads over the base rate tightened to 451 basis points, down from a March high of 504 basis points.
PitchBook further noted that investors showed some caution on lower-rated debt. Triple-C loans declined 0.85% after strong April gains, while BB and single-B tranches advanced 0.52% and 0.82%, respectively.
Longer-term, performance differences across ratings have moderated.
Demand indicators improved markedly. The portion of loans trading at or above par rose to 55% in May from just 6% in March, signaling stronger investor appetite and potential for more repricing activity.
The distress ratio (loans below 80) edged up slightly to 5.93% but stayed well below March peaks.
Primary market activity surged amid favorable conditions and a persistent supply shortage.
Institutional loan issuance reached €9.9 billion—the highest monthly total since September 2025.
PitchBook added that refinancing volume hit €5.1 billion, while issuers executed repricings on €10.5 billion of debt, trimming spreads by an average 52 basis points.
This followed an already active first quarter. One notable repeat borrower, ZPG (backed by Silver Lake and Red Ventures), has reduced margins by 225 basis points across multiple deals since 2024.
PitchBook also mentioned that a structural supply deficit continues to support the market. On a three-month rolling basis, the gap between net supply and CLO demand narrowed but follows a record €33 billion shortfall in 2025.
The ELLI expanded to a new record size of €352 billion, driven by rising LBO and M&A activity.
European loans outperformed U.S. counterparts in May (0.51% for the U.S. index) and lead year-to-date with a 1.49% gain.
PitchBook has added that they also edged ahead of European high-yield bonds. Equities, particularly the FTSE 100, remained the top performer among major asset classes despite a softer May.
PitchBook has now concluded in the extensive research report that May’s developments point to resilient technicals and gradual stabilization in the European leveraged loan market, though risks from geopolitics, rates, and sector-specific pressures continue to persist.