The term "middle market" is too broad for risk assessment. KKR's analysis indicates that default risk and performance dispersion are not uniform. Instead, they will be most pronounced in the lower, smaller end of the middle market, while the larger companies in the upper-middle market remain more resilient.

Sourcing lucrative non-sponsor deals in Europe is a challenge of access, not just analysis, as a "fly-in, fly-out" model fails. The effective strategy is partnering with firms like Lazard, which have centuries-old advisory relationships with target family-owned companies, providing essential boots-on-the-ground origination.

The US corporate market is 75% financed by capital markets, while Europe's is ~80% bank-financed. This structural inversion means Europe is undergoing a long-term, multi-decade shift toward institutional lending, creating a sustained tailwind for private credit growth that is far from mature.

While the US private credit market is saturated, Europe's middle-market offers higher spreads (north of 600 basis points) and lower leverage. This opportunity is most pronounced in non-sponsor deals, a segment where large banks and public markets are less active, creating a lucrative niche.

Aggressive Liability Management Exercises (LMEs), common in the US, are rarer in Europe. This isn't due to a gentler culture but stricter laws where board directors can face criminal charges for insolvency. This incentivizes collaborative restructuring over contentious, US-style creditor battles.

To provide non-recourse financing, the firm structures the deal not as a loan but as a co-investment in a new LLC. The customer contributes common equity (first-loss capital), while the firm's financing is preferred equity. This legally shields the investor's personal assets and makes the capital non-callable.

Unlike US firms focused on rapid exits, many multi-generational European family businesses prioritize stability and privacy. They actively dislike the anonymity and disclosure requirements of public markets, creating a strong, relationship-driven demand for tailored private lending solutions.

The modern high-yield market is structurally different from its past. It's now composed of higher-quality issuers and has a shorter duration profile. While this limits potential upside returns compared to historical cycles, it also provides a cushion, capping the potential downside risk for investors.

Large European banks are not absent from lending, but they prefer the simplicity and regulatory ease of large, portfolio-level financing over complex, single-company underwriting. This strategic focus leaves a significant funding gap in the €100-€400M facility size range for private credit funds to fill.