NEW YORK — A mild slowdown in the once-red-hot private credit market is prompting large investment banks to redouble efforts to finance buyouts through traditional leveraged-loan syndications, according to bankers and investors interviewed this week.
Deal data from research firm LCD shows private credit volumes fell 12% quarter-over-quarter to $56 billion during the first three months of 2026, the first sequential decline since 2020. At the same time, gross issuance of U.S. leveraged loans climbed 18% to $72 billion as several mid-sized buyouts, including the $4.1 billion take-private of software maker Indigra, opted for a broadly syndicated structure.
“The tug of war is just starting,” said a capital-markets head at a bulge-bracket bank who asked not to be named discussing client business. “Sponsors are re-running the numbers and realizing they can shave 150 to 200 basis points by going back to the loan market.”
Over the past five years, private-equity sponsors have relied heavily on direct-lending funds — often charging double-digit coupons — after waves of market volatility made it harder for banks to underwrite and distribute large debt packages. Assets in private credit funds ballooned to roughly $1.7 trillion by late 2025, PitchBook estimates.
But cracks are emerging. Moody’s this month placed $11 billion of unitranche loans on review for downgrade, citing thinner covenants and EBITDA pressure in cyclical sectors. Several insurers that backstop direct-lending vehicles are also approaching internal exposure caps, limiting fresh capacity, according to people familiar with the matter.
Bankers argue the shift is incremental rather than cyclical. “It’s not a wholesale retreat,” said Claire Novak, a senior strategist at JPMorgan in a client note. “Yet each basis-point move lower in market volatility increases the likelihood sponsors test syndicated execution.”
Private-credit managers counter that they still offer speed and certainty. “We can underwrite in 10 days; no bank club will match that,” Apollo Partner James Zelter told investors on a recent webcast.
Looking ahead, analysts at S&P Global expect leveraged-loan issuance to outpace direct-lending volumes in the second half if the Federal Reserve begins cutting rates as futures markets imply. A softer rate environment could narrow the pricing gap that has underpinned private credit’s rise and, in turn, revive the fee pools banks lost during the pandemic era.
Still, most observers see a coexistence rather than a clear victory. “Private credit isn’t going away,” said Jennifer Lee, managing director at consultancy Tidal Partners. “But the pendulum may be swinging back toward a more balanced financing ecosystem.