USA - Nationwide: A Private Credit Overview
Introduction
Private credit has become a cornerstone of US corporate finance, offering flexible and tailored solutions to borrowers and private equity sponsors. In recent years, private credit providers have played prominent roles in debt financings for some of the largest and most complicated leveraged buyouts.
As of today, the global funded private credit market has reached approximately USD2 trillion, representing a 1,000% increase since 2009. The expansion of private credit over that span has been driven by a number of factors, including regulatory changes; the attractiveness to investors of risk-adjusted, high-yield returns; the rapid growth of private equity; an increasing demand for speed, certainty and flexibility of financing; the proliferation of innovative investment vehicles; and the resilience of private credit to market stress.
Key Themes and Trends in Private Credit
Overview of the private credit market
2025 saw a resurgence in M&A and IPO activity following years of muted activity as a result of the economic impact of supply chain disruptions, global inflation and macro-economic developments. The AI revolution has created new opportunities in the market for financing of graphics processing units and data centers, as well as related infrastructure. This momentum created a bullish outlook for 2026.
However, the early part of this year has presented a number of challenges to private credit, including market volatility due to global economic uncertainty, investor concerns over AI-related spending and retail-investor redemptions driven by perceived market risk. Additionally, private credit has faced increased competition over the past two years from the broadly syndicated market following several years of dislocation, with public credit recapturing some market share, including through refinancings of private credit facilities. The resurgence of the syndicated loan market has resulted in stiffening competition for private credit lenders, driving lower pricing and more borrower-favorable deal terms.
Hybrid and junior capital
Private credit providers continue to innovate to meet the evolving needs of private equity sponsors and corporate borrowers. While unitranche facilities remain the primary product of the private credit market, hybrid capital and junior capital solutions that blend debt and equity elements have gained prominence as versatile tools for optimizing capital structures. Tailored hybrid packages allow firms to effectively monetize assets, facilitate growth or delever away from traditional debt, while managing costs, minimizing liquidity outlays and satisfying regulatory requirements without over-leveraging the debt capital structure. These solutions often include preferred equity, holdco facilities, mezzanine debt and junior capital, and can be used for a variety of transaction types. In the first part of 2026, there has been an increase in activity in this part of the market as founder-backed and sponsor-backed companies have sought novel hybrid sources during market uncertainty.
PIK interest – amortization holidays
Increasingly, private credit financings are including as initial terms in the credit documents paid-in-kind (PIK) interest features and amortization holidays, which had historically been reserved as a negotiated accommodation for stressed companies. These features allow borrowers to conserve cash that can be used for operational need or growth opportunities. The PIK option will typically be subject to a one- or two-year sunset, and may include an interest premium if exercised. Amortization holidays are frequently also subject to a sunset, although in some cases private credit providers may not require any amortization over the life of the facilities.
In addition to the commercial implications, when assessing these features, the private credit providers will consider the risk that the removal of these regular payment obligations from the credit facilities can mask financial stress of the company, particularly in the context of “cov-lite” transactions that do not have regular maintenance financial covenants.
Not all private credit providers are embracing these features — some do not have any exposure across their portfolios, while others with more opportunistic fund mandates are aggressively offering PIK options and amortization holidays to maximize returns and provide a competitive advantage relative to both the syndicated market and other private credit providers.
Portability
A notable trend in the private credit market has been an increased prevalence of “portability” features, implemented either in the initial credit documentation or through amendment. This feature permits a private credit sponsor to sell its investment in the company to qualifying sponsors without triggering a change of control, thereby giving the purchasing sponsor the optionality to leave the existing credit facilities in place and avoid the burden, cost and potential delays of seeking and obtaining new debt financing. Often these portability provisions include automatic toggle features, effective upon the change in ownership, that are designed to emulate new credit facilities — this might include a reset of available basket capacity and in some cases even an automatic extension of maturity. The credit documents will typically set limitations around both the identity of the purchasing sponsor and the circumstances under which the portability feature can be used, commonly including limitations on pro forma leverage and requiring a minimum equity contribution.
Liability management
Liability management transactions, which involve restructuring a company’s debt obligations, have continued to be an area of focus of the private credit market. Following numerous high-profile and widely publicized transactions, private credit providers are strongly motivated to ensure that credit documents contain expanded lender protections to set guardrails on these types of transactions. As compared to prior years, liability management events have become a more normalized and accepted tool for companies facing potential defaults or liquidity demands to effectively manage their capital structures and preserve value. Driven in part by expanded lender protections, these transactions in the private credit market have generally trended towards increased openness and ratable opportunity for co-operating creditors. Still, they can often lead to complex negotiations and potential conflict between debtors and creditors, as well as conflict within the creditor group.
Conclusion
Over the past 15 years, private credit has experienced remarkable growth, becoming a pillar of corporate finance. That trend has continued in recent years, particularly in the context of acquisition financings in the US, driven by the ability of private credit to continue to innovate to meet the increasingly complex needs of private equity sponsors and borrowers, while offering speed and certainty of execution on a scale to finance some of the largest M&A and IPO activity in the market. Hybrid capital solutions offer sponsors and borrowers versatile tools to optimize capital structures by managing cash outlays without over-leveraging.
The early part of 2026 has presented a number of challenges to private credit, with macroeconomic developments disrupting the anticipated momentum of M&A and IPO activity from 2025. Despite these headwinds, sponsors and corporate borrowers continue to look to the private credit market for its resilience, adaptability, speed of execution and deal certainty, making a compelling case that we could see private credit take an even greater share of the US debt market moving forward.