Leveraged Loan Market Pulls Record $12 Billion of Deals From Private Credit

The broadly syndicated loan market has refinanced about $12 billion of direct-lending deals in the third quarter of 2026, the highest quarterly total since LCD began tracking the migration in early 2022, as higher-quality borrowers increasingly move from private credit to cheaper liquid-market financing.

The third-quarter figure has already surpassed the $7.2 billion refinanced out of direct lending during the entire first half of 2026 and is well above the $7.5 billion quarterly average since the beginning of 2024, according to PitchBook’s analysis of the record refinancing activity

The acceleration adds to competitive pressure on private credit managers already contending with slower deployment, retail redemptions and tightening economics. It also demonstrates that the syndicated loan market is increasingly functioning as an exit route for stronger private-credit borrowers when public-market pricing becomes sufficiently attractive.

Borrowers save 182 basis points by leaving private credit

The economics behind the migration remain significant. Borrowers refinancing private debt with broadly syndicated loans have reduced their spreads by an average 182 basis points in the third quarter. Average savings were 188 basis points across 2026 through the latest period, compared with 231 basis points in 2025 and 287 basis points during the first quarter of 2024.

The narrowing savings do not mean competition has disappeared. Instead, spreads have compressed in both markets.

Earlier refinancing waves frequently involved expensive second-lien private loans being replaced with first-lien syndicated debt, generating reductions of more than 300 basis points in some cases. Private lenders have since repriced existing loans to retain borrowers, reducing the gap between private and syndicated financing.

The change can be seen in business development company portfolios. More than half of BDC investments carried spreads above 600 basis points at the end of 2023, according to PitchBook. By the end of 2025, that share had fallen to about 20%.

That dynamic reinforces a trend PE NEWSWIRE has tracked as the cost gap pushes borrowers toward bank-led loans over private credit. For private lenders, the competitive threat is concentrated among borrowers large and strong enough to access institutional loan investors.

Syndicated market is taking higher-quality borrowers

The $12 billion migration does not represent a broad reopening of syndicated finance for every private-credit borrower.

PitchBook’s data indicates the transactions remain concentrated among relatively stronger credits. Of the 18 companies in its third-quarter sample, only Dresser Utility Solutions entered the broadly syndicated market with a B-/B3 borrower rating. Most were rated B/B2 or B+/B1.

That contrasts with the first half, when five of the 11 borrowers migrating from direct lending had at least one B-minus rating.

The Federal Reserve has also examined the increasing substitution between private credit and leveraged loans. Its August 2026 analysis of private credit and leveraged loan markets describes the two markets as increasingly interconnected sources of financing for below-investment-grade middle-market companies.

That relationship means private credit and syndicated loans should not be viewed as entirely separate financing channels. Borrowers can migrate between them as pricing, credit quality and investor demand change.

Lower-rated companies still pay a premium

Conditions in the broadly syndicated market remain less accommodating for weaker credits.

New-issue spreads for B+ borrowers averaged about SOFR plus 289 basis points during the third quarter, roughly 20 basis points above the level at the end of 2025. B-rated borrowers experienced a similar increase, while B-minus spreads climbed by more than half a percentage point to about SOFR plus 411 basis points, a 16% increase.

The divergence helps explain why private credit retains an important role despite the record refinancing volume.

Direct lenders can finance smaller, more leveraged or structurally complex borrowers that may struggle to secure attractive terms in syndicated markets. They can also provide certainty of execution, negotiate bespoke covenants and hold loans through periods when liquid-market sentiment deteriorates.

For stronger companies, however, those advantages have to outweigh a potentially substantial difference in borrowing costs.

Private lenders have reasons to preserve cash

The refinancing wave is arriving as parts of the private-credit industry are becoming more selective about deploying capital. Private-credit issuance fell to $44.76 billion in the first quarter of 2026 from $74.56 billion in the previous quarter, while loans to private equity-backed companies declined 37%, according to PitchBook data cited by Reuters. Fundraising and retail inflows have also slowed as investors pay closer attention to credit quality and liquidity.

Some large private-credit vehicles have simultaneously faced elevated redemption requests, increasing the value of maintaining liquidity rather than aggressively competing to retain borrowers that can refinance elsewhere.

Blackstone Private Credit Fund, for example, operates a quarterly repurchase program of up to 5% of outstanding shares. Its September investor communication reiterated that limit while reporting a 9.1% annualized distribution rate for Class I shares.

PE NEWSWIRE has separately reported on Blackstone’s BCRED redemption requests, illustrating how liquidity management has become a more prominent issue for semi-liquid private-credit vehicles.

Private credit’s competitive advantage is becoming more segmented

The record $12 billion of syndicated refinancings does not indicate that direct lending is being displaced across the credit market. Instead, it is drawing a clearer dividing line between borrowers for which private capital provides a structural advantage and those using it as a temporary financing alternative.

Large, higher-quality sponsor-backed companies can increasingly move between direct lenders and broadly syndicated markets, giving borrowers and private equity owners leverage to negotiate lower financing costs.

Smaller companies, more complicated credits and transactions requiring speed or customized structures remain less interchangeable.

For private credit managers, that makes origination and underwriting more important. A portfolio built around loans that can readily refinance into cheaper syndicated debt may face recurring spread compression and early repayments, reducing the duration of high-yielding assets.

The record third-quarter migration therefore represents more than $12 billion of refinancing volume. It shows that as public and private credit converge, the strongest borrowers can increasingly force the two markets to compete directly for their business.