Evolution of Private Credit CLOs in Europe: From Innovative Structures to a Flexible Investment Option

Europe recently witnessed the successful closure of two additional private credit CLO transactions in 2025, following the debut European deal by Barings in November 2024. Leveraging insights gained from advising on the initial three European private credit CLOs, this article highlights the key features of those transactions that are likely to shape the market’s future landscape. Furthermore, we offer our insights and predictions for the upcoming year.

The Ares European Direct Lending CLO 1 was the first of its kind to introduce a reinvestment period, a departure from the inaugural Barings deal which was structured as a static vehicle. Notably, the notes in this transaction were denominated in sterling to mirror the underlying loans, setting a new industry trend. Additionally, the establishment of the vehicle in Luxembourg marked a significant milestone for the European CLO market.

In a similar vein, the Barings Euro Middle Market CLO 2025 featured a 4.5-year reinvestment period, capitalizing on the positive investor reception to Barings’ static European private credit CLO. The notes in this transaction were primarily denominated in euro, with a sterling AAA tranche included to facilitate a multi-currency structure. This innovation allowed assets to be acquired in both euro and sterling, providing a natural hedge against currency fluctuations.

Private credit has seen a rapid expansion across Europe and the UK in 2025, outpacing its current share of global AUM. The region offers an attractive relative value proposition, promising further growth, diversification opportunities, and appealing risk-adjusted returns in the private credit space. With an extended track record and growing corporate acceptance of private credit, deal activity has surged. Structural tailwinds in key sectors such as energy, transport, digital infrastructure, and defense have generated sustained demand for multi-year financing, propelling European direct lending volume to record levels in 2025.

As the private credit landscape evolves, fund managers will need stable and scalable financing solutions. Private credit CLOs are positioned to play a crucial role in supporting the sector’s ongoing growth and diversification efforts. Looking ahead to 2026, we anticipate a broader adoption of multicurrency features in private credit CLOs. Given the importance of building a diversified asset pool, multicurrency structures will be instrumental in achieving this goal. Furthermore, the positive reception to reinvesting structures suggests that future transactions will likely incorporate a reinvestment period, underscoring its importance in attracting investor interest and driving growth in the market.

The European private credit CLO market is on a trajectory of expansion, bolstered by accelerating market activity in both the EU and the UK. The robust precedents set by Barings and Ares have laid a solid foundation for further growth and innovation in the sector. As new managers enter the market and build on these foundations, the stage is set for continued progress and development in 2026.