We believe Q3 2025 represented a turning point for credit markets, as sponsors and borrowers began to re-engage following a turbulent spring.
Post-quarter-end developments, such as idiosyncratic credit events, global trade dynamics, and the government shutdown, have introduced a degree of market volatility. Nevertheless, we believe the market remains constructive and largely risk-on, as investors await a more meaningful return in new deal activity.
Q3 2025 Private Credit Snapshot
We see private credit issuance in Q3 as an encouraging step forward, though it remains too early to announce a full rebound in LBO and M&A activity.
Green Shoots of Activity. Direct lending volume in the quarter reached $83 billion, the highest quarterly total this year, but still 10% below the year-ago period.1 More notably, quarterly LBO volume hit $32 billion,1 a record high for the private market dataset. When combined with $15 billion in add-on M&A activity, this marked the busiest quarter for LBO and M&A transactions since Q4 2023.1 In addition, year-to-date LBO and M&A volume now stands at $116 billion, running 8% ahead of the comparable period last year.1
Jumbo Deals Dominate. Looking more closely at the quarter, eight “jumbo” loans, each over $1 billion in size, accounted for more than half of total LBO issuance.1 Excluding these outsized deals, LBO volume was more muted at $15 billion, which is up 11% from the tariff-impacted Q2, but down 20% from Q1 and 16% from the prior year.1
Spreads Squeezed Tight… With investor demand continuing to outpace net supply, credit spreads remain under pressure. In Q3, large-cap direct lending deals averaged S+5.03%, which represents a modest 6-basis-point increase versus Q2, but still 22-basis-points tighter than Q1.1 For loans backing LBO transactions, average spreads compressed 20-basis-points quarter-over-quarter and 12-basis-points versus Q1 to reach a new record low of S+4.90%.1
…But Still at a Premium to BSL. Although spread compression has continued in the private markets, the relative premium versus the broadly syndicated loan market remains compelling in our opinion and has continued to widen. In Q3, the private large-cap spread premium over single-B rated BSL loans rose to 172-basis-points, up from the 12-month average of 162-basis-points, as BSL spreads experienced more pronounced tightening.1
Q4 Sneak Peak, Exercising Caution
October ushered in an eventful start to Q4 with the collapse of Tricolor and First Brands briefly rattling the market.2 While we view these defaults as idiosyncratic events rather than indicators of systemic problems, we believe they underscore the importance of disciplined underwriting and further validate our approach, which is to focus on companies that have positive credit indicators, including, without limitation, whether a company is well diversified across businesses or products, has strong a management team, has a market leading position, has high customer switching costs, generates predictable revenue, operates in a less cyclical industry and/or benefits from secular tailwinds.
October has also been overshadowed by a prolonged government shutdown. Equity markets have largely looked past the impasse, with indices climbing to record highs.3 Still, we are monitoring the market for potential ripple effects stemming from the shutdown, and specifically, what those effects could imply for the Federal Reserve’s near-term rate decisions.
A Perfect Storm for Dealmaking
We believe a confluence of market dynamics should support a more fulsome rebound in LBO and M&A activity as we head into 2026:
- Lower Base Rates: The Federal Reserve initiated its first rate cut of the year in September, followed by another in October.4 While the October FOMC meeting tempered expectations, markets still broadly anticipate another rate cut in December.5
- Record-Low Credit Spreads: Credit investors remain eager to deploy capital which has intensified competition and compressed spreads to historically tight levels.1,6
- Improved Macroeconomic Visibility: Greater clarity around trade, fiscal, and regulatory policy supports a more constructive backdrop for deal activity.
- Pressure on Sponsor Deployment and Exits: Private equity firms face mounting pressure to put dry powder to work and return capital to their LPs.7
Taken together, we believe these factors lay the groundwork for a meaningful pickup in LBO and M&A activity as we move into year-end and beyond.
Brinley’s Outlook
Looking ahead, we believe direct lenders are well positioned to capitalize on the recovery in deal activity. Market conditions have remained fluid this year, marked by intermittent volatility and macroeconomic uncertainty. As sponsors and borrowers navigate this dynamic landscape, we believe the structural advantages of private credit such as certainty of execution and speed to close, to name a few, remain critical differentiators and will drive sustained momentum as transaction activity continues to recover.
We appreciate your continued partnership as we work towards a strong close to 2025.
Warm regards,
The Brinley Partners Team
The information and opinions contained herein are for background purposes only, are subject to change without notice, do not purport to be full or complete and do not constitute an offer to sell, or a solicitation of any offer to buy, any securities or investment services. Brinley Partners, LP (“Brinley”) has no obligation to update any information contained herein for any reason, including to reflect any change in its research conclusions, investment methodology, strategy or perspective. Unless otherwise indicated, the information contained herein is current as of the date indicated. The information contained herein is believed to be reliable and has been obtained from sources believed to be reliable, but no representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this presentation by Brinley, its affiliates or any of their respective members, partners, directors, officers, employees and agents and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. In particular, but without prejudice to the generality of the foregoing, (i) no representation or warranty is given as to the achievement or reasonableness of any returns, projections, estimates, valuations or prospects contained in this document or in such other written or oral information and (ii) Brinley makes no guarantee as to the reliability of any third-party information source, and its opinions concerning the accuracy, relevance and implications of the historical information or future projections included herein are liable to change without notice.
This document contains “forward-looking statements” within the meaning of the federal securities laws. In this context, forward-looking statements often address expected future business and financial performance and financial conditions, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Recipients should note that these and other forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Past performance is not a guarantee of future results.
Opinions expressed herein reflect the current subjective views and opinions of Brinley as of the date hereof only and are subject to change. Such opinions and views may be based on a variety of factors, including, without limitation, market observations, the experience of Brinley and its team as investors in the relevant market and Brinley’s analysis or interpretation of objective market data or historical trends. Certain information contained herein discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed or relied upon as research or investment advice. There can be no assurances that any trends described herein will continue or will not reverse. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of, future events or results.
- Source: KBRA DLD, as of 9/30/25. Note: Private market volume figures have been tracked since 2021.
- Source: Pitchbook Quick Take: Leveraged loans post worst single-day loss since April, as of 10/10/25.
- Source: S&P Dow Jones Indices, Nasdaq, as of 10/24/25.
- Source: Federal Reserve Board, FOMC Statement, as of 10/29/25.
- Source: CME FedWatch Tool, as of 10/30/25.
- Source: Pitchbook Q3 Loan Market Wrap: Opportunistic deals lead activity, spreads tighten, as of 9/29/25.
- Source: Pitchbook Q3 US PE Breakdown, as of 10/10/25.
Q3 2025 Brinley Market Minute
We believe Q3 2025 represented a turning point for credit markets, as sponsors and borrowers began to re-engage following a turbulent spring.
Post-quarter-end developments, such as idiosyncratic credit events, global trade dynamics, and the government shutdown, have introduced a degree of market volatility. Nevertheless, we believe the market remains constructive and largely risk-on, as investors await a more meaningful return in new deal activity.
Q3 2025 Private Credit Snapshot
We see private credit issuance in Q3 as an encouraging step forward, though it remains too early to announce a full rebound in LBO and M&A activity.
Green Shoots of Activity. Direct lending volume in the quarter reached $83 billion, the highest quarterly total this year, but still 10% below the year-ago period.1 More notably, quarterly LBO volume hit $32 billion,1 a record high for the private market dataset. When combined with $15 billion in add-on M&A activity, this marked the busiest quarter for LBO and M&A transactions since Q4 2023.1 In addition, year-to-date LBO and M&A volume now stands at $116 billion, running 8% ahead of the comparable period last year.1
Jumbo Deals Dominate. Looking more closely at the quarter, eight “jumbo” loans, each over $1 billion in size, accounted for more than half of total LBO issuance.1 Excluding these outsized deals, LBO volume was more muted at $15 billion, which is up 11% from the tariff-impacted Q2, but down 20% from Q1 and 16% from the prior year.1
Spreads Squeezed Tight… With investor demand continuing to outpace net supply, credit spreads remain under pressure. In Q3, large-cap direct lending deals averaged S+5.03%, which represents a modest 6-basis-point increase versus Q2, but still 22-basis-points tighter than Q1.1 For loans backing LBO transactions, average spreads compressed 20-basis-points quarter-over-quarter and 12-basis-points versus Q1 to reach a new record low of S+4.90%.1
…But Still at a Premium to BSL. Although spread compression has continued in the private markets, the relative premium versus the broadly syndicated loan market remains compelling in our opinion and has continued to widen. In Q3, the private large-cap spread premium over single-B rated BSL loans rose to 172-basis-points, up from the 12-month average of 162-basis-points, as BSL spreads experienced more pronounced tightening.1
Q4 Sneak Peak, Exercising Caution
October ushered in an eventful start to Q4 with the collapse of Tricolor and First Brands briefly rattling the market.2 While we view these defaults as idiosyncratic events rather than indicators of systemic problems, we believe they underscore the importance of disciplined underwriting and further validate our approach, which is to focus on companies that have positive credit indicators, including, without limitation, whether a company is well diversified across businesses or products, has strong a management team, has a market leading position, has high customer switching costs, generates predictable revenue, operates in a less cyclical industry and/or benefits from secular tailwinds.
October has also been overshadowed by a prolonged government shutdown. Equity markets have largely looked past the impasse, with indices climbing to record highs.3 Still, we are monitoring the market for potential ripple effects stemming from the shutdown, and specifically, what those effects could imply for the Federal Reserve’s near-term rate decisions.
A Perfect Storm for Dealmaking
We believe a confluence of market dynamics should support a more fulsome rebound in LBO and M&A activity as we head into 2026:
Taken together, we believe these factors lay the groundwork for a meaningful pickup in LBO and M&A activity as we move into year-end and beyond.
Brinley’s Outlook
Looking ahead, we believe direct lenders are well positioned to capitalize on the recovery in deal activity. Market conditions have remained fluid this year, marked by intermittent volatility and macroeconomic uncertainty. As sponsors and borrowers navigate this dynamic landscape, we believe the structural advantages of private credit such as certainty of execution and speed to close, to name a few, remain critical differentiators and will drive sustained momentum as transaction activity continues to recover.
We appreciate your continued partnership as we work towards a strong close to 2025.
Warm regards,
The Brinley Partners Team
The information and opinions contained herein are for background purposes only, are subject to change without notice, do not purport to be full or complete and do not constitute an offer to sell, or a solicitation of any offer to buy, any securities or investment services. Brinley Partners, LP (“Brinley”) has no obligation to update any information contained herein for any reason, including to reflect any change in its research conclusions, investment methodology, strategy or perspective. Unless otherwise indicated, the information contained herein is current as of the date indicated. The information contained herein is believed to be reliable and has been obtained from sources believed to be reliable, but no representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this presentation by Brinley, its affiliates or any of their respective members, partners, directors, officers, employees and agents and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. In particular, but without prejudice to the generality of the foregoing, (i) no representation or warranty is given as to the achievement or reasonableness of any returns, projections, estimates, valuations or prospects contained in this document or in such other written or oral information and (ii) Brinley makes no guarantee as to the reliability of any third-party information source, and its opinions concerning the accuracy, relevance and implications of the historical information or future projections included herein are liable to change without notice.
This document contains “forward-looking statements” within the meaning of the federal securities laws. In this context, forward-looking statements often address expected future business and financial performance and financial conditions, and often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “see,” “will,” “would,” “target,” similar expressions, and variations or negatives of these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Recipients should note that these and other forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Past performance is not a guarantee of future results.
Opinions expressed herein reflect the current subjective views and opinions of Brinley as of the date hereof only and are subject to change. Such opinions and views may be based on a variety of factors, including, without limitation, market observations, the experience of Brinley and its team as investors in the relevant market and Brinley’s analysis or interpretation of objective market data or historical trends. Certain information contained herein discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed or relied upon as research or investment advice. There can be no assurances that any trends described herein will continue or will not reverse. Past events and trends do not imply, predict or guarantee, and are not necessarily indicative of, future events or results.
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