Jefferies Credit Partners closed $4 billion in aggregate capacity for its European Direct Lending Strategy, including the first close of an inaugural fund backed by Allianz Global Investors. The vehicle targets European mid-market corporate borrowers shut out of syndicated loan markets, where €47 billion in covenant-lite issuance dried up in Q4 2024 according to LCD data. Jefferies declined to specify the Allianz commitment size but confirmed the insurer leads a roster that includes three European pension systems and one Canadian sovereign wealth vehicle.

The fund deploys in floating-rate senior secured loans to companies with €50 million to €500 million in enterprise value, primarily in Germany, France, and the Benelux corridor. Target spreads sit at EURIBOR plus 550-650 basis points, approximately 180 basis points wider than comparable U.S. direct lending issued in January. Jefferies structured the vehicle with a 7-year investment period and 12-year fund life, longer than the typical 5+2 vintage favored by U.S. credit funds. The firm expects second close by June 2025 at $6 billion to $7 billion, positioning it among the top five European direct lenders by committed capital alongside Ares, HPS, and Intermediate Capital Group.

This marks Jefferies' first dedicated European direct lending fund, a material shift from its advisory and syndication heritage. The bank originated $11 billion in European leveraged loans last year but retained minimal exposure on balance sheet. Building a captive pool allows the firm to hold paper through refinancing cycles rather than distribute it, a necessity as European banks retreated from covenant-lite underwriting under Basel III capital constraints. German Landesbanks alone cut mid-market corporate loan books by €14 billion in 2024, creating the refinancing wall Jefferies now services. Allianz's anchor commitment also signals institutional comfort with illiquid credit at a moment when public high-yield spreads compressed to 312 basis points over German bunds, the tightest since February 2022.

Allocators should track Jefferies' second close for signal on whether U.S. insurance capital follows Allianz into European direct lending structures, particularly if USD hedging costs decline below 90 basis points as forward curves suggest by mid-2025. The firm's deployment pace matters: if Jefferies places $1.5 billion by Q3 2025, it validates mid-market borrower appetite at these spreads. If deployment lags, sponsors may be waiting for cheaper syndicated markets to reopen, compressing direct lender margins. Worth monitoring: covenant terms on the first 10 to 15 deals, especially maintenance leverage tests and EBITDA add-back definitions, which will set precedent for European direct lending documentation standards through 2026.

Jefferies committed 18 investment professionals to the European platform, including three former Deutsche Bank credit traders and the ex-head of Intermediate Capital Group's German office. The firm has already signed $900 million in term sheets, two-thirds in Germany.