New York: A Banking & Finance Overview

In 2026, Continued Uncertainty Takes a Toll

While the loan markets delivered a strong performance in 2025 despite challenges, continued disruptions to the global economy have had a more significant impact in early 2026. Concerns over the effects of artificial intelligence (AI) and renewed conflict in the Middle East have slowed dealmaking and financing activity. While the “Liberation Day” tariffs announced in early April 2025 appeared to have had only a short-term effect on the loan market, events in 2026 have presented more persistent challenges. Importantly, the tariffs represented a dramatic change in US economic policy, but one that markets were generally well-equipped to price into asset values. The conflict between the USA and Iran is an event (the duration of which is unclear) that will likely have economic ramifications that are not yet well understood. It remains to be seen how market participants will adapt to a disrupted, dynamic and rapidly changing environment.

Broadly Syndicated Loans: Disruptions but Mega-Deals Move Forward

Following a strong 2025, most market observers expected significant growth in the broadly syndicated loan (BSL) market in 2026, driven by an uptick in M&A activity. However, worries over AI and its economic impact and geopolitical events have dampened both the M&A and BSL markets. In February, concerns about the effect of AI “vibe coding” on software businesses drove down prices and slowed activity. The most serious fallout has been in the direct-lending space, which had financed many of the software as a service (SaaS) deals of the last several years, but the syndicated market was affected as well, with volume falling more than 40% versus February 2025 – while yields increased both in the broader market and most dramatically in the software space.

Market activity was further disrupted at the beginning of March when conflict broke out between the United States and Iran. The conflict resulted in broad volatility in commodities and equity markets, and slowed M&A and loan market activity, at least initially. However, the syndicated loan market actually improved somewhat over the course of March, even while the conflict was ongoing, and it continues to improve today. Despite heightened risk, there have been some bright spots at the top end of the scale.

The question going forward is when the M&A market, outside of the largest deals, can recover and whether buyers will come off the sidelines and seek opportunities resulting from global disruptions. If not, the loan market may face a challenging year. In 2025, much of the activity consisted of repricings, leaving spreads on existing credits tight, with little room for further contraction in a riskier environment. As a result, it is likely real growth in the BSL market will need to be driven by new M&A rather than activity around existing deals.

Revised Leverage Lending Guidance

In December 2025, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) rescinded prior guidance to banks regarding leveraged lending. Notably, the Federal Reserve has not yet joined the OCC and FDIC in making this change. While the Fed is generally expected to do so eventually, the divergence creates some uncertainty around the regulatory landscape in the interim.

The prior guidelines were widely treated as generally requiring transactions to have a total debt-to-EBITDA ratio of six times or less and requiring borrowers to have the capacity to amortize 50% of the original principal amount within 5–7 years of closing. These perceived limitations narrowed the market for bank-arranged loans, providing an opening for direct lenders willing to finance higher leverage levels and borrowers with less robust cash flows. This growth in the direct market was cited as a justification for the change in guidance.

The new guidelines are less prescriptive and call on banks to “apply the agencies’ general principles for prudent risk management of commercial loans and other types of lending to their leveraged lending activities,” listing eight broad principles, including risk management, consideration of a loan’s purpose, and the availability of refinancing. While any impact is unlikely to be immediate, as banks will need to revise internal guidelines and underwriting requirements, the opportunity to offer financing to a wider set of borrowers may partially offset contraction in the M&A market.

Syndicated Market Opportunities Resulting From Private Credit Disruptions

The combination of the recent downturn in private credit and the loosening of official guidance on leveraged loans may give banks an opportunity to recapture some of the market share gained by direct lenders in recent years. Direct lending funds have seen unprecedented redemption requests in the first quarter of 2026, initially driven by concerns around exposure to the software industry.

While some funds have capped redemptions and argued that their loan portfolios remain solid in spite of short-term disruptions, it is possible that investor concerns (and more limited inflows) may reduce deployable capital for firms going forward. Banks that elect to take advantage of the revised lending guidelines may be able to move into the market for higher-leverage borrowers and replace some of the capital previously provided by the direct market. The heightened competitive dynamic and direct lending challenges may allow the syndicated markets to regain some territory after years of losing ground to direct lenders.

Documentation Updates

One of the more significant changes to syndicated loan documentation in 2026 (continuing a trend from 2025) has been the broader acceptance of “portability” or “permitted change of control” provisions. Portability most frequently appears in sponsor-owned credits and includes an express carve-out permitting an existing sponsor to sell the borrower to another qualified sponsor without triggering a change of control under the credit documents. These provisions first became more common in the direct lender space, where lenders interested in keeping capital deployed often accepted such provisions. In the syndicated market, there has been greater resistance to including terms that would allow a borrower to avoid a refinancing.

However, with continued pressure from sponsors, these provisions have recently started to appear in some syndicated deals. The specifics of these provisions vary widely but typically include minimum qualifications – eg, assets under management (AUM) thresholds – for the new sponsor, a ratings or leverage test and often a sunset prior to which the permitted change of control must occur. Sponsors may view these provisions as particularly useful in the context of a refinancing or major amendment late in their investment cycle, where their exit would be expected to occur well ahead of the loan’s maturity, particularly if the financing was obtained on favorable terms during a market window that would be appealing to potential buyers.

While liability management exercises (LMEs) continue to occur in the BSL market, lenders have generally not sought additional protective provisions. “J. Crew” and “Chewy” blockers, and to a lesser extent, “Serta” protection, have been fairly common in the syndicated market for years. However, other anti-LME provisions like “Envision,” “Pluralsight,” and “At Home” have remained the exception in the syndicated markets, even as they have become more common in the direct-lending space. As LME activity continues at pace, and given the likely riskier lending environment going forward, it will be interesting to see if syndicated lenders have the desire and the leverage to include these terms.

Conclusion

In 2026, we have worked alongside our clients as they navigate a financial landscape marked by both significant challenges and compelling opportunities. In this environment, the market participants who have thrived to date are those who have remained nimble and positioned themselves to execute swiftly when favorable conditions emerged.