The Future of Leveraged Loans, Mergers & Acquistion, and Leveraged Buy Out Financing
A recent PitchBook article highlights that bankers and analysts foresee another active year for the credit market in 2025. However, matching the remarkable activity of 2024—when transactions, including repricings, hit a record-breaking $1.4 trillion—may prove challenging. This year is expected to bring a more diverse mix of new issuances, with an emphasis on higher-risk, higher-reward mergers & acquisitions (M&A) and leveraged buy outs (LBO) financing. PitchBook highlights several key trends that market experts are closely monitoring for 2025:
- M&A Activity: Bank of America Securities projects a 23% rise in event-driven activity, particularly mergers and acquisitions.
- New Issuance Growth: JPMorgan predicts a substantial increase in new issuance (excluding refinancings), though M&A and LBO syndications may not reach historical highs, partly due to competition from private credit.
- Deal Diversity: Barclays foresees a more balanced distribution of deals, with a significant decline in refinancings as issuers have already addressed short-term maturities, paving the way for more M&A and LBO financing.
Private Credit 2025 Outlook: Growth, Challenges, and Opportunities
The private credit market is expected to see increased M&A activity and continued expansion in 2025, though attracting potential debt issuers and bringing them to market will remain a hurdle. According to a direct lender, “The backlog for the first quarter is the highest we’ve seen in some time heading into a new year,” signaling that unrealized exits are beginning to surface. A key expectation for the private credit market in 2025 according to PitchBook is Strategic Partnerships leading to more collaborations, acquisitions, and arrangements among asset managers, insurance companies, and banks as they seek to scale up and compete.
Distressed Debt 2025 Outlook: Opportunities Amid Economic Strength
Distressed investors are entering 2025 with optimism, despite the continued strength of the U.S. economy. Paradoxically, this economic resilience is fueling expectations for increased distress opportunities. As the Federal Reserve slows its pace of rate cuts, elevated base rates on floating-rate debt may push highly leveraged companies toward balance sheet restructurings—or even defaults. According to PitchBook, investors are closely monitoring how restructuring dynamics may evolve in the year ahead. The recent surge in lender-mediated exchanges (LMEs) is shifting the “fulcrum” debt instrument in distressed issuers’ capital structures, potentially altering the course of restructuring processes.
US CLO Market 2025 Outlook: Another Record-Breaking Year?
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The US collateralized loan obligation (CLO) market continues to set new records, with $197 billion in issuance as of December 18, 2024, and expectations for even higher volumes in 2025. This vital driver of demand for leveraged loans is attracting a growing range of fixed-income investors. According to PitchBook, key trends to watch as the CLO market heads into the new year:
- Record-Setting Volume: Early projections for 2025 suggest new CLO formations could surpass $200 billion, excluding refinancings and resets of existing deals.
- Boost from M&A Activity: A potentially softer regulatory stance, influenced by a Trump administration, may fuel M&A activity, further supporting CLO formations and returns.
- Retail Expansion: CLO exchange-traded funds (ETFs) could bring CLOs into retail investment portfolios, with one market participant speculating, “This might be the year [CLOs] go retail, showing up in 401(k) plans.”
US High-Yield Bond Market 2025 Outlook: Anticipating Growth and Managing Risks
Following a 2024 dominated by refinancing activity, US high-yield bond players are preparing for a surge in M&A-related issuance in 2025, supported by expectations of a more favorable regulatory environment under a Trump administration. However, optimism is tempered by potential uncertainties, as the market’s success will depend on avoiding major disruptions. Key areas of focus for the year ahead include: Tariff Concerns, Increased High-Yield Issuance and Narrowing Credit Spreads.
European Private Credit 2025 Outlook: Growing Collaboration with Banks
Private credit players in Europe are increasingly collaborating with banks on deals, utilizing innovative structures like payment-in-kind (PIK) financing and hybrid arrangements, a trend expected to gain momentum in 2025 as banks expand their presence in the private credit space. This growing partnership is set against a backdrop of a stabilizing financing environment, with lower debt costs and narrower spreads helping buyers and sellers align more effectively.
As banks, broker-dealers, private credit and asset management firms prepare for what could be a very active 2025 in deals and transactions, compliance teams should assess whether they are prepared to handle the volume of material, nonpublic information (MNPI) and conflict clearances situations. StarCompliance (Star) is here to help with intuitive MNPI and enterprise conflict solution workflows, as well as knowledgeable professionals who understand these challenges and have a proven client base.
