Signs of strain in the private credit market have prompted certain corporate borrowers to pursue bank-led syndicated loans, attracted by materially lower borrowing costs and greater liquidity, market participants said.
For below-investment-grade credits, risky loans arranged by banks in the broadly syndicated loan (BLS) market are trading at spreads roughly 200 basis points tighter than comparable direct lending transactions arranged by non-bank private credit providers, according to two senior loan bankers who discussed the market dynamics and pricing differences. That disparity - large enough in their view to justify changing funding venues - has led several borrowers to either complete or contemplate switching from private credit to syndicated loans.
The move toward banks comes as private credit fundraising slows and investor redemptions rise, a combination that has tightened the operating environment for non-bank lenders. Bankers and legal advisers described the trend as an early indication that traditional banks may be regaining market footing after a period of robust private credit growth.
"If public markets are open, and your credit profile is strong, there’s a real case for tapping the BLS (broadly syndicated loan) market," said Marc Pinto, global head of private credit at Moody’s Ratings. "You get liquidity, price discovery, and the ability to refinance down the road." Pinto later cautioned that when high-yield spreads are overly tight, it may not be sustainable for borrowers that have alternative options.
Market drivers and pricing
Spreads began to widen late last year, according to the bankers, driven in part by concerns that portfolios concentrated in software and other information-technology businesses could face disruption from developments in artificial intelligence. That prospect, together with signs of stress among mid-sized borrowers, pushed direct lending loan spreads up to roughly 550 to 600 basis points over the Secured Overnight Financing Rate (SOFR).
By contrast, junk loan spreads in the broadly syndicated, public market have averaged in a range of about 350 to 400 basis points over SOFR, the bankers said. That divergence - approximately 200 basis points - is seen by some lenders and sponsors as a strong economic incentive to refinance in the syndicated market when feasible.
Evidence of market movement
So far this year, at least four transactions totaling about $4.3 billion have moved from direct lending to the syndicated market, one of the bankers said, citing internal industry data. Another banker said discussions are underway with sponsor groups seeking to move select portfolio companies out of direct lending arrangements and into broadly syndicated structures, although that person described the migration as still being in its early stages.
Despite these deal-level shifts, aggregate syndicated loan market data have not yet shown a clear change in the overall market size. PitchBook data indicate the broadly syndicated loan market remained near $1.55 trillion through the first quarter and the end of last quarter. Meanwhile, the volume of direct lending transactions has dropped sharply year-over-year: Preqin data show direct lending deals fell to 104 in the first quarter from 216 in the same quarter in 2025.
Alternative investment fundraising through direct lending also appears to have slowed. Robert A. Stanger & Co reported that alternative fundraising totaled about $15.0 billion in March 2026, down 5% from February and 18% below the level a year earlier, with a continued slowdown in Business Development Company (BDC) fundraising accounting for a large portion of the decline. BDCs are important lenders to many mid-sized companies and they frequently place capital into private direct loans.
Drivers of borrower decisions
Borrowers are weighing a mix of factors beyond price when deciding between the direct lending and syndicated markets. "While some borrowers may be drawn to the syndicated market because of pricing differentials, the decision is rarely driven by rate alone," said Sheel Patel, head of New York Private Credit at Mayer Brown. He noted that execution risk, timing, flexibility, certainty of capital and the ability to manage downside scenarios also play central roles in choice of capital provider.
That calculus means some companies will continue to explore both funding routes depending on individual needs, risk profiles and timing considerations. The broader refinancing picture for software and information-technology companies is still evolving: PitchBook data show the first large wave of maturities on loans made by BDCs to software companies is not slated until 2028, tempering immediate urgency for many sponsors.
According to PitchBook, about $6.15 billion of BDCs’ software company loans are scheduled to mature next year, representing roughly 5% of BDC software debt. The maturity burden rises substantially in 2028, when about $20.6 billion - or 18% of BDC software debt - comes due.
Bank demands and lender competition
Banks are reported to be urging some highly leveraged borrowers to take steps to improve their balance sheets before pursuing new refinancing - including raising capital through preferred equity to strengthen positions without triggering the dilution associated with common stock. Bankers say they are pressing highly leveraged companies to reduce debt loads, a condition that could affect the structure and timing of refinancing efforts.
As some borrowers migrate to banks, private credit lenders find the remaining opportunities increasingly competitive. Angela Hagerman, a debt finance partner at Reed Smith, said private credit providers are responding by lowering prices and loosening covenants in some cases to compete more effectively with traditional banks. "They’re willing to drop the pricing down (and) loosen some of the covenants…In general, they’re willing to be more flexible and truly compete with the traditional bank lender market," she said.
At the same time, bankers said private credit is in a period of dislocation, with rising redemption pressure and selloffs of some alternative asset manager shares prompting more cautious capital deployment by private lenders. In one notable transaction, banks sold a $5.75 billion loan to help finance a leveraged buyout of a major software company, and some private credit funds either pulled back or reduced their commitments in that syndication, a source familiar with the deal said. Private credit funds often provide excess capital into syndicated loan deals, but current market dynamics have made them more selective.
In that specific deal, private credit participation waned in places and the company involved declined to comment, according to market sources. Observers say BDC managers and other private lenders are becoming choosier about where they deploy capital.
Implications and near-term outlook
The emerging pattern of borrowers gravitating toward the syndicated market reflects both immediate pricing incentives and broader liquidity considerations. For companies with strong credit profiles and access to public markets, tapping the broadly syndicated loan market can offer price advantages, faster price discovery and the prospect of refinancing on more favorable terms in the future. However, many borrowers will continue to balance those benefits against execution risk, covenant flexibility and capital certainty.
Market participants caution that while the trend is visible at the deal level, it remains early and not yet fully evident in aggregate syndicated loan data. The pace of any sustained migration from private credit to syndicated loans is likely to hinge on how redemption pressures and fundraising conditions evolve among non-bank lenders, how banks approach underwriting and covenant packaging, and the timing of loan maturities for concentrated segments such as software companies.