European direct lending contracted in 2Q26, even as the region overall remains on pace to at least match the record lending volumes seen last year, according to Debtwire‘s 1H26 direct lender rankings report.

Direct lending volumes in Europe amounted to EUR 28.4bn across 296 deals in 2Q26, down 25% from the EUR 38.04bn spread across 367 deals in 2Q25, according to Debtwire data.

Volumes are likewise down from the EUR 34.8bn seen in 1Q26, even as deal count remained relatively consistent quarter-on-quarter, dipping from 303 to 296 deals – suggesting a slowdown in the large-cap space following an especially vibrant 1Q26 for big-ticket transactions may partly account for the falloff in lending volumes.

Still, at EUR 63.16bn in 1H26, direct lending volumes are higher than any other half-year on record, putting the region on course for another record-breaking year provided this momentum can be maintained throughout 2H26.

Institutional markets meanwhile surged in 2Q26 to post their biggest quarter on record with a combined EUR 128.3bn issued across loans and high yield bonds, indicating that a resurgent broadly syndicated loan (BSL) market might also be behind the lack of new large-cap transactions in the private credit space in 2Q26.

Public lending accelerated sharply in 2Q26, with institutional loan issuances climbing to EUR 86.5bn from the EUR 70.5bn issued in 1Q26, making 2Q26 the second-highest quarter on record for loans. High yield bond issuances in 2Q likewise jumped to EUR 41.8bn, up from EUR 26bn in 1Q26.

As in 1Q26, refinancings continue to account for a substantial portion of activity in both the public and private debt markets. Around 37% of direct lending proceeds in 2Q26 were earmarked for refinancings, compared with 29% allocated for traditional LBO financing. In the public markets, around 87% of new institutional loan issuances in 2Q26 were earmarked for refinancings.

In terms of sectors, technology again remained the most active space for direct lenders in 1H26, accounting for EUR 11.8bn of deal volumes, demonstrating that lenders’ appetite for deals in the sector remains healthy amid the ongoing debate on the impact of AI on software companies, at least for some well-positioned credits.

Margins on direct-lending unitranches meanwhile remained largely stable quarter-on-quarter, with average margins ticking upwards just over one-tenth of a percentage point to 542bps over the reference rate from an average margin of 530bps recorded in 1Q26.

Over the past three quarters, average margins have now settled to hover within a fairly narrow bandwidth, suggesting direct lenders have found a new equilibrium on pricing following a period of sometimes wild, quarter-on-quarter swings in margins seen in the earlier part of the decade.

Fundraising picked up slightly, with direct lenders collectively raising EUR 10.7bn in 2Q26. Still, with only around EUR 18.8bn raised in total in 1H26, direct lenders so far appear unlikely to match last year’s record fundraising haul of EUR 69.6bn.

Among direct lenders, Ares claimed the top spot in Debtwire’s 1H26 European Direct Lender Rankings, reporting 31 new deals that account for roughly 7.8% of the market. Arcmont placed second with 23 deals and 5.79% market share, while Apollo followed in third place with 20 deals and a market share of 5.04%.

Including add-on financings, Ares extended its lead in 1H26, registering 56 deals that give it a total market share of 10.07%. Arcmont came in second place with 36 deals and a market share of 6.47%, followed by Muzinich with 28 deals and a market share of 5.04%.

In terms of ESG-linked deals, a different set of funds comes to the fore, with Fiduciam leading the pack in 1H26, with 18 transactions giving it a 23.68% share of the ESG market. Eurazeo followed with 17 deals and an ESG market share of 22.37%, followed by Pemberton with 11 deals and a market share of 14.47%.

The large cap space meanwhile is home to a three-way tie between Apollo, Arcmont and Goldman Sachs Private Credit, with each player reporting 11 deals for a market share of 16.92% a piece in 1H26. Ares followed in fourth with nine deals and a 13.85% market share, with Hayfin just behind with eight deals and a 12.31% market share.

Over in the midmarket, Pemberton comes out on top, financing 13 deals that give it a 12.5% share of the midcap space. Ares followed in second with 11 deals and a market share of 10.58%, with Arcmont in third with seven deals and a market share of 6.73%.

The small cap space meanwhile sees Fiduciam at the top of the chart, with its 18 deals giving it a 14.4% of the small cap space. Eurazeo came in second with 13 deals and a market share of 10.4%, followed by CVI in third with 12 deals for a market share of 9.6%.

When accounting for deal size in 1H26, Ares comes on top in the large cap space, with EUR 2.51bn in deal value accounting for a 11.6% of the market. Blackstone Credit follows in second with EUR 2.15bn in large-cap deal volume, with Goldman Sachs Private Credit in third with EUR 1.74bn in deal volume.

Arcmont meanwhile comes in first in midcap deal volume, with EUR 1.48bn in deal volume giving it a 10.5% share of the midmarket space. Ares follows closely behind in second with EUR 1.46bn in midmarket deal volume, with Pemberton in third with EUR 1.17bn in midmarket deal volume.

Over in the small cap space, Ares and Arcmont swap places, with Ares reporting EUR 461m in small cap deal volume and a market share of 11.54% and Arcmont reporting EUR 430m in deal volume and a 10.75% market share. Eurazeo rounds out the top three with EUR 415m in deal volume and a 10.38% market share.

For a deeper dive into sectoral and regional trends, download Debtwire‘s full 1H26 European Direct Lender Rankings Report.