After years marked by the pandemic, supply chain disruptions, geopolitical tensions, and a prolonged cycle of rising interest rates, Spanish leveraged finance is showing clear signs of maturity. This reflects the consolidation of a more disciplined market, supported by three pillars: abundant liquidity, more realistic valuations, and growing cooperation between banks and private debt funds. The result is a more selective, resilient, and professionalised ecosystem.
The first indicator of this transition is visible in the renewed appetite for financing transactions with a more balanced risk-return approach. With strong balance sheets and a clear willingness to support clients, banks are once again energising leveraged finance flows as buyers and sellers converge towards more prudent multiples. Deal flow reflects this diversification: refinancings to extend maturities in line with longer investment horizons; recapitalisations aimed at optimising IRR in extended exit processes; add-ons supporting buy-and-build strategies; and new money transactions regaining traction alongside the recovery of the M&A market. In an environment of high but stable interest rates, confidence is anchored in fundamentals rather than expectations of sharp monetary policy shifts.
In this context, the relationship between banks and direct lenders has shifted from competition to functional complementarity. In leveraged finance, hybrid structures are increasingly common, combining amortising bank tranches with bullet tranches provided by debt funds. These structures allow for optimised leverage, greater flexibility, and controlled financing costs. The compression in valuations has reduced pressure to maximise debt, leading to a rise in fully banked structures for companies with stable cash generation. However, bullet tranches continue to play a role when leverage requirements or cash flow profiles do not allow for a fully bank-based solution. The market operates more efficiently when each participant assumes the type of risk it is best equipped to manage.
In 2025, momentum is distributed across three main types of transactions: refinancings, recapitalisations, and new money deals. Refinancings remain key to extending maturities and adjusting debt structures following the extension of investment horizons, including the restructuring of ICO-backed facilities originated during the disruption years. Recapitalisations enable interim returns while awaiting divestments. New money is reactivated by productive investment and M&A activity in traditional sectors such as food and agribusiness, services, healthcare, and to a lesser extent, industrials. A new development is a more careful assessment of borrowers’ exposure to the US, given potential impacts from new tariff policies.
One of the most revealing trends has been the consolidation of continuation funds, which allow the extension of asset holding periods without forcing suboptimal exits. This evolution reflects a more forward-looking approach to liquidity cycles: maturities are anticipated, and debt structures are aligned with cash generation capacity and business plans adapted to a more demanding environment.
In terms of structures and conditions, there have been no disruptive changes, but rather gradual adjustments to a more volatile environment. Margins have remained stable, leverage levels are moderate, and spreads reflect strong credit discipline despite abundant liquidity. This balance is essential: maintaining proportionate covenants aligned with risk profiles, ensuring robust reporting, and implementing amortisation schedules that do not compromise execution.
On sustainability, Spain stands out for integrating ESG criteria into corporate leveraged financing structures. Around 60% of contracted volume includes sustainability-linked components. This is not merely a reputational add-on, but a competitive lever driven by regulation and by the conviction that the transition towards more sustainable production models creates long-term value. The challenge lies in defining meaningful KPIs and establishing clear economic consequences in the event of underperformance.
Co-investment in debt tranches between LPs (Limited Partners, institutional investors providing capital to funds), the funds themselves, and GPs (General Partners, the managers structuring and executing transactions) remains limited but adds efficiency in selected deals. It optimises capital usage, reduces equity tickets, and distributes risk without diluting execution accountability. It is a tool with significant potential when transparency, incentive alignment, and clear leverage constraints are in place.
Outlook suggests that normalisation will continue through mid-2026. Key fundamentals are converging: abundant liquidity, high but predictable interest rates, already adjusted valuations reactivating primary markets, and a pipeline of refinancings (including ICO facilities and 2020–2022 vintage debt) that is orderly in its maturity profile. This is complemented by disciplined credit underwriting, moderate leverage, and stable spreads, alongside institutionalised bank–fund cooperation, while geopolitical volatility is managed as an embedded risk within structures. In the absence of exogenous shocks, these factors should sustain activity without abrupt cyclical shifts.
Against this backdrop, best practice is full professionalisation of the process: experienced teams, early involvement of all stakeholders, and the ability to adapt structures within tight timelines. Debt is regaining its strategic centrality—not to increase leverage, but to accelerate value creation, anticipate risks, and align horizons. Spain is already operating in this way; the challenge now is to maintain discipline, prioritise quality over volume, and avoid any signs of complacency.
Jean-François Guicheteau, Managing Director of Leveraged Finance atBBVA
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