Direct lenders are jumping ahead of inflation and liquidity-led crises amongst struggling borrowers by kick-starting conversations long before covenants can bite and trigger a default. Unlike the broadly leveraged loan market, most deals in the European direct lending market are bilateral loans containing at least one financial covenant. That means credit funds have more power to control and initiate talks with borrowers before any covenant can spark default. “A dialogue takes place much earlier than it used to in the past, and direct lenders are being a lot more flexible than traditional bank lenders in dealing with companies that are having difficulty servicing their debt,” said Simon Fulbrook, Private Equity partner in London. “They want to see a fee or higher margin," said Fulbrook to Refinitiv. "They might also need further protections such as a limitation on borrowers’ future acquisitions or debt issuances."