Season 2, Episode 9

On this episode of LFI Levered Lines, host Kerstin Kubanek is joined by Nick Baldwin from Lincoln International to examine the rising stress indicators in Europe's private credit market. The conversation explores the record 3.9% covenant default rate in Q3 2025, with 3.4% of companies on covenant holidays and a significant increase in firms with less than 10% covenant headroom. Nick provides detailed analysis on the surge in PIK interest to 17.5%, distinguishing between "good PIK" structured at origination versus "bad PIK" introduced through amendments to address liquidity challenges. The discussion highlights sector-specific vulnerabilities in technology—particularly software and digital media companies from 2021-2022 vintages—alongside persistent consumer sector stress. The panel examines spread compression trends moving down-market, competitive dynamics in direct lending, and the potential impact of increasing M&A pipelines on 2026 market conditions. Essential listening for private credit professionals navigating evolving credit quality and lending dynamics.