GERMANY Law and Practice Contributed by: Michael Josenhans, Lucas Lengersdorf and Karl Kuhn, Freshfields
1.2 Interaction With Public Markets Competitiveness of Public Debt Markets v Private Credit in Germany In recent months, Germany’s public debt mar - kets, particularly syndicated loans and high-yield bonds, have shown increased competitiveness with private credit markets. The leveraged loan market has rebounded, with refinancing activ - ity demonstrating a strong comeback. Notably, borrowers in Germany are increasingly exploring public debt options to benefit from lower mar - gins and more favourable terms compared to private credit. Regardless, debt funds were still able to claim about half of the financed deals in the German mid-cap market in 2024. Significant Refinancing Trends There has been a noticeable trend of private credit being refinanced into public debt prod - ucts. The resurgence of syndicated loans has allowed borrowers to achieve margin savings of up to 200 basis points. For reference, the all-in yield of 10.82% of the Private Performing Credit Index is currently 240 basis points higher than the European Leveraged Loan Index. This shift highlights the competitive pressure on private credit funds as public markets regain momen - tum amid stabilising interest rates. In summary, Germany’s public debt markets have posed strong competition to private credit, with significant refinancing activities driven by cost advantages and improved liquidity in syn - dicated loans and high-yield bonds. 1.3 Acquisition Finance Private credit has played a significant role in acquisition financing in Germany, particularly for private equity-sponsored deals. However, it has not been an uncontested preference, as pub - lic markets and bank financing have remained strong competitors.
Market Share of Private Credit v Banks In Germany, private credit funds have been able to defend their market share relative to banks. In 2024, debt funds financed around 55% of com - pleted mid-cap transactions, compared to 45% financed by banks. Financing Purpose and Acquisition Trends Add-on acquisitions and leveraged buyouts (LBOs) have been a strong driver for private credit activity in Germany. Add-ons remained a substantial part of German deals throughout 2024. The share of new LBOs remained small but increased across Europe, including Germa - ny, signalling that private credit remains attrac - tive for sponsors pursuing new acquisitions. Competitive Pressure from Banks and Public Markets Despite private credit’s flexibility, public debt markets and banks have been strong alterna - tives. For instance, refinancing activity has increasingly moved towards syndicated loans due to pricing advantages. This indicates that some private credit transactions have been replaced or refinanced by more traditional While private credit remains a preferred form of acquisition financing for mid-market spon - sor transactions and complex LBOs due to its flexibility and speed, public markets and bank debt have emerged as competitive alternatives, particularly for high-quality assets and larger borrowers. 1.4 Challenges Several challenges have impacted the expan - sion of Germany’s private credit market over the last year, a number of which are set out below. financing sources. Overall Preference
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