With the continent's banks pulling back, U.S.-based private-equity funds - KKR among them - are stepping up their lending to Europe's small and medium-sized companies. There were 56 such deals in 2013 Q4 up from less than 20 in the 2013's first quarter, and the P-E firms are on the hunt for more.
Unlike the U.S. - where there's been a healthy direct lending market for some time - the practice is relatively new in Europe, coming as banks there cope with strict new capital rules.
The P-E industry - thinking it could make easy money in Europe buying distressed loans amid the sovereign-debt crisis - went out and raised a ton of cash from investors. But when the ECB bailed out the banking system and fire-sales weren't forthcoming, the P-E firms found themselves with a lot uninvested cash and investors expecting double-digit returns. The next logical step: Skip the banks altogether and start pitching struggling European companies directly.