LUXEMBOURG Law and Practice Contributed by: Stefanie Ferring, Oliver Zwick and Geoffrey Scardoni, Clifford Chance
1. Private Credit Overview 1.1 Private Credit Market
time, including the last 12 months. Depending on market conditions, however, sponsors will look to the syndicated loan market for larger transactions. 1.4 Challenges The expansion of the private credit market in Luxembourg faces several challenges. Increased competition has made it harder to secure deals and achieve desired returns. Navigating new regulations can be complex and costly. Econom - ic volatility, such as fluctuations in interest rates and inflation, can impact investment perfor - mance. Additionally, reduced liquidity has made it more difficult for funds to raise new capital. 1.5 Junior and Hybrid Capital In Luxembourg, junior and hybrid capital prod - ucts are commonly provided by private credit providers, though they are not as prevalent as senior debt offerings. These products, which include mezzanine financing and preferred equi - ty, are typically used by companies looking for more flexible capital structures or those involved in leveraged buyouts. The recent trend shows an increasing interest in hybrid instruments as borrowers seek alternatives to traditional financing to balance their capital structures, improve liquidity, or fund acquisitions. Investors are responding to this demand by offering tai - lored solutions that incorporate equity-like fea - tures, allowing for potential higher returns while accommodating varying risk appetites in the current economic climate. 1.6 Sponsored/Non-Sponsored Debt Private credit providers are mostly focused on sponsor-led transactions, but there are a number of private credit funds which regularly transact with founder-owned companies and public com - panies.
Over the past 12 months, Luxembourg’s private credit market has shown resilience and mod - erate growth, despite facing challenges from global economic uncertainties and inflation - ary pressures. The steady economic environ - ment, coupled with Luxembourg’s reputation as a financial hub, has supported ongoing credit activities, albeit with cautious investor senti - ment. Recent surveys have estimated that Lux - embourg’s private credit market has reached a remarkable valuation of EUR510 billion, resulting in a 21.5% increase between June and Decem - ber 2023. Private debt consistently covers a wide array of sectors, notably infrastructure and transportation, energy and environment, chemi - cals, IT, telecoms, media and communications, and healthcare and life sciences. 1.2 Interaction With Public Markets In Luxembourg, the public debt markets, specifi - cally broad-based syndicated loans and high- yield securities, have maintained a level of com - petition with the private credit market over the past six months. The comparatively low interest rates within the public markets have continued to attract certain borrowers seeking to refinance existing private credit arrangements, especially among larger enterprises capable of accessing these markets. Despite this, the appeal of private credit remains robust, largely due to its flexible terms and bespoke financing structures, which continue to attract mid-sized and smaller com - panies. Consequently, while there is some refi - nancing activity involving a shift to public debt products, it is not overwhelmingly predominant. 1.3 Acquisition Finance Private credit has been the preferred form of acquisition financing in Luxembourg for some
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