A&M’s latest Debt Market Update highlights key developments shaping private credit, leveraged lending, and macro-economic conditions as markets transition into 2026. Despite modest improvements in M&A activity late in the year, elevated competition, persistent inflation, and sector-specific headwinds continue to influence pricing, risk, and capital deployment across the credit landscape.

Key Themes for 2025 and the Outlook for 2026 Include:

• Consumers are feeling the pressure with fewer employment openings and inflationary pressures, with more consumers classified as subprime.
• Spreads for new issuances have continued to compress throughout 2025. At the end of 2025, the majority of new issuances were priced at S+4.50%.
• The 2026 outlook is that the fed rate will normalize to about 3% to 3.5%. With lower base rates and spreads tightening, BDCs will continue to see pressure on their weighted average yield on assets.
• Continued convergence of the BSL and private credit markets as competition remains fierce.
• Secondaries are expected to see much higher volumes as investors enter the growing asset class.
• The rise of partial PIK or full PIK features in private credit continues to grow as lenders cooperate with sponsors to provide necessary liquidity relief.
• LMEs are top of mind for investors but given the expectation of potential issues with recovery given default, investors are now pushing hard for subordination protections.
• The size and scope of the global private credit markets will continue to grow rapidly in the next few years as the asset class enters into new strategies such as infrastructure funds, asset financing, aircraft leasing, auto loans, and other areas.
• M&A is expected to pick up in 2026 due to lower interest rates, greater clarity on tariffs, increased private equity sponsor confidence in the macro environment and pent-up demand for attractive investments.
• Dividend recaps are expected to decline due to expanded exit opportunities.
• Refinancing activity has most likely peaked.

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