UK Trends and Developments Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
ally, European transactions typically price wider than their US counterparts and often benefit from tighter documentation, primarily driven by a less syndicated market with fewer players and higher barriers to entry. Growth of asset-based and structured financing Private credit in the UK and Europe is rapidly expand - ing beyond its traditional direct lending roots into diverse forms of lending, including an ever-widening range of asset-backed finance (ABF) and structured credit solutions. Investors are increasingly gravitat - ing towards ABF for compelling economic reasons. Asset diversification, high asset quality and the often self-liquidating nature of underlying assets ensure that ABF transactions are fundamentally decoupled from the corporate credit cycle and therefore better performing during economic downturns. Higher bar - riers to entry compared to traditional corporate lend - ing – due to the complexity of these structures – also contribute to higher spreads. In the long term, ABF is expected to challenge, or even overtake, traditional LBOs as a source of deal flow for private credit funds as banks struggle to meet demand and cater for the flexibility required by borrowers to manage complex financing structures. A particularly significant driver of structured finance growth has been the explosive demand for digital infrastructure, particularly data centres powering artificial intelligence workloads. Financing for AI data centres and related projects has grown substantially in recent years with further supply from the sector expected to be pivotal for credit markets in 2026. JPMorgan reports that US data centre-related bond issuance reached USD15.1 billion in 2025, surpassing the total for 2024. They estimate that around USD150 billion will be needed in 2026–2027 to convert short- term construction loans into long-term financing for nearly 20 GW of data centre capacity. In the UK, gov - ernment forecasts suggest that reaching as much as 6.3 GW by the end of the decade may not be enough to meet demand, even as the spend on new data cen - tre capacity is set to rise to GPB10 billion a year. The scale of investment in AI infrastructure is such that even the largest technology companies are looking to external capital providers to support their AI capital expenditure with private credit being a critical part of the equation.
With the convergence of public and private markets and the ability of private credit funds to find cheaper sources of capital, private credit has now become an attractive option for large, investment-grade financ - ings. Similar to the growth story of private credit more generally, investment-grade institutions are becoming increasingly aware of the benefits of private credit in their capital structure. The ability to create customised financing solutions – along with underwriting flexibility, execution certainty and confidentiality – makes private credit a compelling option, notwithstanding the slight premium in cost. As banks continue to shift their role from holders of corporate debt to arrangers and facili - tators, the market for investment-grade private credit will continue to grow. Intensifying regulatory scrutiny and policy-led investment Regulatory developments are shaping the future of UK and European private credit. EU member states must prepare for new laws under the AIFMD 2.0 directive by April 2026, placing new obligations on alternative investment funds that originate loans and increasing transparency requirements. In the UK, the Financial Conduct Authority and Prudential Regulation Author - ity have indicated their intentions to better understand risks and exposures related to the financial system and private capital, which may lay the foundations for further regulatory interventions. At the same time, policy-led investment in infrastruc - ture, energy transition and defence is creating sub - stantial new demand for flexible capital solutions, particularly in Germany and France. European policy - makers are pursuing capital markets reforms designed to revive and simplify EU securitisation, opening addi - tional opportunities for private credit deployment in areas such as ABF and significant risk transfer. The combination of regulatory pressure on banks and stra - tegic policy priorities is expected to accelerate the shift from bank lending to private credit over the com - ing years, further embedding private credit at the core of corporate finance across the continent. Increased competition between private credit and syndicated bank markets As European private credit matures, the bounda - ries between private credit and the broadly syndi -
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