USA - NATIONWIDE: An Introduction to Banking & Finance

2025: Deals Amid Uncertainty

Many market observers had expected 2025 to be a strong year for deal-making and a quick return to 2021 levels of acquisition activity. But the leveraged loan market has been mixed for most of 2025, due in part to policy changes that have triggered uncertainty for companies and markets alike. That said, deals (including opportunistic deals and LBOs) are happening in a year of constant change.

The year began with a flurry of new credits launched in the first quarter, including significant refinancings. The markets were coming off a recent high: in 2024, the leveraged loan market achieved a milestone, reaching USD1.337 trillion. Despite a subdued M&A landscape, some marquee acquisition debt deals closed early in 2025, setting the stage for continued high activity.

Broadly Syndicated Loans (BSL)

The early months of 2025 saw a busy broadly syndicated loan (BSL) market, marked by refinancings of private credit debt and new acquisition financings fueled by strong demand in the collateralized loan obligation market. This momentum was interrupted by the April 2 “Liberation Day” tariff announcement, but May heralded a remarkable comeback with reverse flex action across numerous deals. Notably, Alera’s refinancing stands out as the largest refinancing of a private debt deal with a BSL on record, underscoring the BSL market’s resilience even amidst a muted acquisition financing landscape. Banks have taken the opportunity to facilitate the refinancing of existing private credit deals as that asset class will experience some refinancing cliffs in the near term. Execution speed for the BSL market has become a key theme, as lenders and borrowers navigate a rapidly changing environment with narrow windows for deal completion. As such, documentation and marketing efforts have been accelerated to ensure swift transitions from mandates to closings.

With subdued M&A activity, BSL lenders have had to compete vigorously with private credit lenders, offering borrowers more flexible terms and tighter economics, particularly in the rated and upper middle-market segment. As lenders vie for deal share amidst limited new supply, some borrowers have been able to exploit dual-track processes with private credit.

Asset-Based Lending

The asset-based lending (ABL) market is growing significantly, with a projected compound annual growth rate (CAGR) of 14.1%, from USD785.6 billion in 2024 to USD896.12 billion in 2025. Looking ahead over a longer timeframe, the Business Research Company projects the ABL market will reach USD1.43 trillion by 2029 at a CAGR of 12.5%. This forecasted expansion is attributed to global economic trends and volatility, increased demand for non-traditional financing, and a growing role for assets as collateral in cross-border transactions.

Private credit ABL has emerged as a formidable product in the financial landscape, with the first-in-last-out (FILO) loan product featured in high-profile transactions in March 2025, leading some market observers to predict massive growth in this sub-asset class.

Private Credit and BSL – Convergence, Consolidation, and “Co-Opetition”

Private credit has grown exponentially over the last decade, driven by regulatory changes, investors searching for better terms and higher yields, and the increasing sophistication of private credit providers. At the end of 2024, the global private credit market was valued at approximately USD1.8 trillion, with projections suggesting the market could more than double in the coming decade (PitchBook data published March 2025). As noted above, the relative resurgence of the BSL market has resulted in increased competition for private credit, and in some cases terms and pricing have converged.

The private credit market is witnessing a wave of consolidation, with larger firms acquiring other players to enhance their market share. BlackRock’s USD12 billion acquisition of HPS is indicative of this trend.

Banks, which face regulatory burdens that initially led to the growth of the private credit market, have developed partnerships with private credit funds in order to expand their access to private credit borrowers. These “co-opetition models” highlight the complementary strengths of both parties: banks with their built-out infrastructure for originating loans, and private credit funds which excel at raising, managing, and deploying capital. This model enables banks to offload risk while maintaining client relationships and provides private credit funds with access to a broader range of investment opportunities.

Liability Management Exercises

Liability management exercises (LMEs) have become a prevalent practice in the leveraged loan and private credit markets, offering both challenges and opportunities for lenders and borrowers. For the 12 months ending April 2025, LMEs accounted for 72% of all restructuring events by issuer count in the Morningstar LSTA US Leveraged Loan Index, consistently outpacing payment defaults and bankruptcies every month since January 2024. This prevalence reflects companies’ preference for out-of-court solutions to manage unsustainable debt rather than resorting to traditional bankruptcies.

As companies restructure their debt, they seek new financing to support revised capital structures, creating openings for banks and private credit providers to offer innovative financing solutions tailored to the specific needs of companies undergoing liability management. The BSL and private credit markets have responded to LMEs with a range of tightening of related covenant protections, with the BSL market continuing to offer borrowers more flexibility.

Tariffs

The political landscape regarding tariffs has highlighted the need for flexible financing strategies and lightning-fast execution. The “Liberation Day” tariff announcement has led to increased costs and uncertainty, though delays in tariff implementation have had positive impacts on markets negatively affected by tariff announcements.

The private credit and ABL markets have responded by offering tailored solutions, with lenders focusing on industry-specific needs and leveraging non-traditional collateral types. This has led to a surge in demand for private credit products, as firms provide customized financing options to ensure borrowers receive the necessary support to navigate the complexities of tariff impacts.

Conclusion

As we have helped our clients navigate the complexities of 2025, we have observed firsthand how the financial landscape presents both challenges and opportunities for lenders and borrowers alike. The resilience of the leveraged loan market has set the stage for dynamic shifts across the broadly syndicated loan, asset-based lending, and private credit sectors. The most successful market participants this year have been adaptable and ready for rapid execution to capitalize on windows of opportunity amidst economic fluctuations.