Debt Download - January 2026

Welcome to Debt Download, Goodwin's monthly newsletter covering what you need to know in the leveraged finance market. Wishing all of our readers a healthy and prosperous Year of the Horse!

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In the News

• The broadly syndicated loan (BSL) market recaptured market share over the private credit market in 2025, with gross issuance in the BSL market of $979.8 billion ($494.9 billion of which were repricings) compared to $140 billion in the private credit market. At the same time, private credit lenders refinanced $36.9 billion of BSLs, according to PitchBook, the highest level in at least four years. The flex score by mid-December was the most Borrower-favorable since June, at 11:1, and the average all-in single B clearing spread was steady at S+321. According to CreditSights, the average pro forma adjusted debt multiple for M&A deals backed by BSLs was at 4.6x for the last quarter of 2025, up from 4.4x for the third quarter of the year. Investors expect leverage multiples to continue to rise as a result of the rescission of post-2008 banking crisis leveraged lending regulations, further discussed below.
• In early December, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency lifted their lending guidance limiting banks' ability to make high-risk loans (i.e., loans to borrowers with leverage exceeding 6.0x). Market participants anticipate that banks will more aggressively compete against private credit lenders as a result of the easing of the restrictions. In fact, banks have already booked over $65 billion of debt tied to leveraged buy-outs for 2026. The regulatory changes follow concerns by some simmering in the market for the past few years around the rise and corresponding risks of private credit, as we have discussed in prior Debt Download editions. Indeed, Bloomberg recently noted that, with the renaissance of cheaper BSL financing and corresponding competition, private credit lenders are more frequently agreeing to riskier so-called "covenant lite" loans, which are ubiquitous in the BSL market and do not include a financial maintenance covenant on the term loan that otherwise protect lenders and sometimes include a "springing" covenant applicable only to the revolver.
• JPMorgan Chase & Co.'s chief executive officer, Jamie Dimon, notoriously fanned the BSL vs. private credit flames back in October during the bank's quarterly earnings call, warning analysts of "cockroaches" in the credit market, in particular with respect to private credit investments. He predicted "higher-than-normal downturn type of credit losses in certain categories," referring to business development companies (BDCs), often seen as a proxy for private credit providers. Not all executives agree with Mr. Dimon, however; Marc Lipschultz, Blue Owl Capital Inc.'s co-chief executive officer, defended private credit shortly after JPMorgan Chase & Co.'s earnings call, indicating the issue is with the BSL, not private credit, markets. That being said, according to Bloomberg, investors withdrew more than $2.9 billion from the largest BDCs - Ares Management Corp., Blue Owl Capital Inc. and Blackstone Inc. – in the last quarter of 2025 in response to lower returns from the reductions of interest rates and concerns over borrower credit quality. In addition, Fitch Ratings' 2026 Outlook for U.S. Business Development Companies indicated that it "has a 'deteriorating' sector outlook" for U.S. BDCs "in 2026, due to pressure on earnings and dividend coverage from declining interest rates and elevated payment-in-kind (PIK) income."
• The back-to-back bankruptcies of First Brands Group and Tricolor Holdings rocked the credit markets in the fall of 2025 and the fallout continues, although it seems relatively contained at this point. While working to restructure $6 billion of debt on First Brands' balance sheet, its lenders discovered that First Brands also had more than $2 billion of off-balance sheet debt that it had not disclosed and that was cross-secured by the same accounts receivable as the company's bank debt. According to The New York Times, dozens of private credit lenders and hedge funds, including UBS and Jefferies, are collectively owed billions of dollars in connection with the First Brands bankruptcy case. Meanwhile, several lenders, including JPMorgan Chase & Co., Barclays plc and Fifth Third Bancorp, have combined exposure of almost $1 billion for bank warehouse lines and asset-backed securitizations made to Tricolor, which were secured by collateral approximately 40% of which secured other debt. These cases have caused structured lenders to carefully examine their operational diligence and data verification procedures on both new and existing deals to combat accidental and intentional double-pledging.

Goodwin Insights – Crystal Ball Predictions for Leveraged Finance in 2026

To start out the first edition of Debt Download in the new year, the Goodwin U.S. Debt Finance team wanted to share its predictions for 2026 in leveraged finance, which are provided below.

• With likely one to three interest rate cuts this year ranging from 25-75 bps in total, it will be a big year for repricings.
• As sponsors continue to hold investments from the early 2020s and contemplate sale processes, and with maturity nearing for the existing credit facilities of those investments, sponsors will be faced with the decision of rolling the dice on a sale coming to fruition or paying the fees that will go along with refinancing an existing credit facility. In those instances where sponsors choose to refinance existing credit facilities, sponsors will more frequently be looking for portability provisions to be included to hopefully recoup some of those fees through a successful sale process if the purchaser maintains such facility after the sale occurs.
• With aforementioned interest rate cuts expected and with sale activity expected with sponsors sitting on investments for many years and investors looking for return of capital before committing to new funds during fundraising, M&A activity will pick up toward the latter part of the second quarter and in the second half of the year, which will lead to an increasing amount of LBOs. We expect LBO activity in the back half of the year to be the highest it has been since the first few months of 2022.
• With respect to those sponsor investments from the early 2020s that may have softness in their performance and that are likely facing a credit rating decrease and do not have the luxury for a successful refinancing, considering the expansive LME flexibility in credit agreements from that vintage, sponsors will turn to LMEs as a solution. This will further encourage lenders to push for heightened LME protections in new loan deals, even with rising competition in the marketplace.
• With the withdrawal of the leverage lending guidelines in December 2025, banks will provide further competition to the private credit market by underwriting more highly leveraged transactions. In turn, the private credit market will be pushed by sponsors to provide greater flexibility with terms in their loan documents to more closely align with those being provided in BSLs, including increasing the MFN yield differential above 50 bps, contemplating MFN sunsets, providing for "no worse" prongs for pari passu incremental debt, entertaining higher caps (or even no caps) on cost savings and new contract EBITDA addbacks and more strongly considering EBITDA "high water" marking.
• Even with decreasing interest rates, as additional flexibility for opening up more cash for operations, sponsors will continue to push for PIK toggles in their senior secured loan documents and also push for 0% amortization, in addition to looking to exclude any PIK amounts from leverage. As a further way to keep cash in the business, sponsors will continue to try to chip away at removing the excess cash flow sweep from loan documents.
• Expected interest rates decreases will lead to sponsors pushing more for interest coverage ratios to be included as a prong for incremental incurrence and also for additional carve-outs to (and ratable step-downs with) prepayment premiums.
• Covenant-lite loans (as discussed above) will continue to push further down market, with covenant flips occurring more frequently in the $45-50MM EBITDA range.

In Case You Missed It – Check out these other recent Goodwin publications: What's Next for Global PE in 2026? More Exits and Creative Solutions; How Medicaid Cuts Could Reshape the Business of Health; Life Sciences Capital Markets: Preparing for Your 2026 IPO; The Delaware Question; The Global Push to Open Private Markets to Mainstream Investors; Five Strategies for Gaining a Competitive Deal Edge Without Overpaying (Mergers & Acquisitions)