The U.S. private credit market—where non-bank lenders provide financing to companies—has continued to grow steadily, even amid broader market volatility. As U.S. banks pull back from corporate lending, private credit has stepped in to fill the gap. In this article, we explore key trends shaping the future of this expanding market.
The continued growth of private credit
Private credit has become one of the fastest-growing areas in U.S. lending. Its rise is being driven by a few major trends: private equity sponsors and companies are looking for certainty of financing, banks are becoming more cautious, and private capital investors are eager to put money to work—especially with a slowdown in M&A activity and IPOs. Many private credit deals are in the lower and core mid-markets, where U.S. banks have become less active due to tighter regulations and greater market risk, leaving few alternatives for borrowers. For high mid-market and larger deals, private credit competes with the broadly syndicated loan (BSL) market, term loans arranged by banks and sold to institutional investors, and high-yield note offerings. Compared with BSL and high-yield note offerings, which require marketing to investors and extensive financial and corporate disclosure, private credit deals can often be completed faster and with less market risk. While this debt comes at a higher cost for borrowers, many borrowers are willing to pay the premium—especially in uncertain market conditions.
Private credit deals are particularly attractive to companies that may have specific marketing concerns, such as a sensitive disclosure issue, a shorter period of available audited financials, or being in an industry that is out of favor with investors (e.g., a company in an industry with a perceived higher tariff exposure, which is not in line with the company's specific risk). When the BSL and high-yield bond markets are volatile, issuers may initially close deals with private credit lenders (e.g., for an acquisition financing or when a maturity is impending) and then refinance at a lower cost in the BSL or bond market. Private credit lenders will continue to negotiate call protection and upfront economics to protect themselves from this dynamic.
The slowdown in M&A activity and IPOs has also pushed more investment managers to shift capital toward private credit opportunities. The appeal of higher returns and less volatility has attracted investors to a global market that some estimate will be US$3 trillion by 2028. Some experts worry that rapid growth could lead to weaker lending standards, but so far, the structure of most private credit deals remains relatively conservative, with lender-friendly covenants and stronger protections than what's typical in the BSL market. Given the influx of capital and relatively light M&A activity, private credit funds have expanded their geographic reach. Europe is becoming an increasingly important region for private credit growth as banks across Europe reduce their lending exposure in response to regulatory changes, similar to the pattern seen in the United States.
Market expansion and convergence
Private credit is no longer just about direct lending, where it has typically been considered to comprise senior loans to fund mid-market private equity leverage buy outs or otherwise fund mid-sized companies. It has expanded into areas that used to be dominated by the BSL. Today, private credit strategies include asset-based lending, structured finance, significant risk transfer transactions, and even investment-grade loans to large public corporations. Some private credit funds have also started buying syndicated BSL loans, including when prior private credits have refinanced in the BSL market with looser terms, making the distinction between the two markets less clear.
The appeal of higher returns and less volatility has attracted investors to a global private credit market that some estimate will be US$3 trillion by 2028.
Rather than competing, banks and private lenders are increasingly working together. In co-lending deals, club transactions, and joint ventures, banks bring size and reach, while private lenders offer large pools of capital to deploy. This growing overlap is changing the landscape of corporate lending, creating a more connected and efficient market for borrowers and lenders alike. However, it could also create pressure on lenders to loosen credit standards and adopt the most borrower-friendly features of each market, increasing market risk.
Credit challenges on the horizon
Despite its momentum, the private credit market is not immune to risk. Many loans made in the low-interest rate environment of 2020 and 2021 are now feeling the strain. As interest rates have risen and credit spreads widened, some companies are struggling to manage higher debt payments, which could lead to cash flow issues or covenant breaches. While some borrowers have refinanced or restructured their debt—using tools like payment-in-kind (PIK) interest or extending maturities—many others have yet to address the pressure. Measuring the real level of risk in private credit is tricky because reporting standards vary and less public information is available compared to traditional markets. Often, signs of trouble don't appear until a company misses a payment or enters a formal restructuring process.
Conclusion
The private credit market has proven to be flexible and resilient as the financial landscape evolves. What started as a source of funding for middle-market companies that could not access the syndicated loan market has now become a key part of the broader lending environment, fueled by demand from investors. As private credit continues to grow and overlap with traditional lending, both borrowers and lenders will need to stay focused on maintaining strong credit standards and adapting to ongoing economic shifts.
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