The private credit market experienced a quiet third quarter as direct lending volume fell to the lowest level in three years, extending the slowdown that began earlier in 2026.1
Several persistent macroeconomic pressures shaped the backdrop. The Federal Reserve raised interest rates for the first time in nearly two years, with potential for another increase before year-end.2 The conflict in the Middle East continued to weigh on energy markets, inflation, and the broader economic outlook, and unresolved questions around AI disruption added to investor caution.2
However, the softer headline transaction volumes tell only part of the story. Despite slower deal flow:
- Lending terms continued to move in favor of those providing capital.
- Underlying fundamentals remained sound.
- Market dislocation was concentrated in specific pockets rather than broad based.1
We believe this environment creates an attractive opportunity for lenders to deploy selectively at favorable risk-adjusted returns.
Q3 2023 Private Credit Snapshot
Third quarter private credit issuance fell 55% year-over-year to $39 billion, constituting the lowest quarterly total since 2023.1 This brought the year-to-date total to $152 billion, which is nearly 30% behind the year-ago period.1
The decline was driven primarily by opportunistic transactions. Refinancing and dividend recapitalizations, which surged in 2025, accounted for most of the year-over-year drop1. Refinancing transactions declined 65% in the quarter and roughly 50% year-to-date, while dividend recapitalizations saw a steeper 85% decline in the quarter and a 70% decline year-to-date.1
Buyout and add-on M&A volume also fell 45% in the quarter, but strong momentum from earlier in the year helped cushion the pullback, keeping the year-to-date decline at just 12%.1
The slowdown was most pronounced in software1. Volume tied to software transactions declined 85% year-over-year with underlying software borrowers representing only 7% of U.S. direct lending activity in the third quarter, which is a
notable shift from the sector’s 20% average quarterly share since 2024.1
Terms Remain Favorable to Lenders
The pullback in transaction volume coincided with measurably improved terms across pricing and structure. This shift has been supported by a contraction in available private credit capital, driven in part by liquidity pressures across non-traded BDCs. Non-traded BDC redemptions totaled $15 billion through the first half of the year, even after funds enforced quarterly 5% redemption caps.3 The surge in outflows, combined with a slowdown in inflows from new investors, has constrained capital supply and reinforced discipline across the private credit asset class.3
- Average unitranche spreads widened to S+5.22% for the quarter, up from S+5.08% last quarter and at the widest level since the first half of 2025.1
- The share of large-cap deals pricing below S+5.00% fell to 18% in the third quarter, sequentially down from 42%.1
- Capital structures grew more conservative. Unitranche LBO leverage fell to 5.1x, a new low, and sponsor equity contributions rose to a record 67%.1
- The yield premium on private large-cap loans over comparable single-B broadly syndicated loans ended the quarter near 177-basis-points, 12-basis-points above the rolling two-year average.1
Across recently evaluated deals at Brinley, we have seen a pricing floor of approximately S+5.00% on high-quality credits, with only a small fraction of deals clearing tighter than that. Pricing on software and more “storied” credits has been far more varied, ranging from the mid-to-high 500s and extending into the 600s with more OID versus the rest of the market, a sign that lenders are differentiating much more sharply by credit quality.
Competition with the BSL Market
Broadly Syndicated Loan (“BSL”) new issuance in the third quarter declined 21% year-over-year, but LBO and M&A activity proved to be a bright spot, increasing 13% year-over-year.4 This trend was also apparent in the year-to-date period with LBO and M&A increasing 16%, despite total activity trailing last year’s pace by 11%.4
The public market strength was underpinned by aggressive pricing as average new issue spreads for BSL LBO transactions compressed to S+3.08% during the third quarter, the tightest level since 2020.4 The attractive bank pricing provided an alternative execution pathway for larger borrowers, enabling BSL lenders to refinance a record $16 billion of direct lending loans during the quarter.4 It also fueled an end-of-quarter surge with BSL LBO and M&A financing climbing to $31 billion in September, marking the highest monthly total since early 2022.4
We are frequently asked how we view t his competitive dynamic. Our perspective remains that there is room for both markets to grow, with each providing distinct benefits. In situations requiring certainty of execution, speed, customized structural flexibility, and long-term partnership, we see sponsors and borrowers continuing to value private credit and being willing to pay a premium for those benefits.
Looking Ahead: Brinley’s Outlook.
We expect private credit volume through the rest of the year to remain modestly active as interest rate trajectories, geopolitical developments, and evolving views on technology sector risks continue to weigh on market sentiment.
However, we do not view a quieter market as a weaker one. BDC redemptions and legacy software portfolio markdowns have prompted several direct lenders to reduce check sizes or temper deployment appetite. As we have observed in prior market cycles, the periods when other investors step back and capital supply contracts have historically been some of the most attractive times to deploy.
We do see a meaningful opportunity taking shape heading into 2027 with roughly $300 billion of broadly syndicated loans scheduled to mature in 2028 and 2029.5 Those figures are well above recent years, when an average of roughly $60 billion came due over a comparable two-year window.5 Higher borrowing costs have made this debt more difficult and expensive to refinance, and software borrowers, which have recently fallen out of favor due to AI concerns, account for roughly a third of the total.⁵ We believe this refinancing need will expand the opportunity set for private credit as borrowers and sponsors look for flexible, reliable capital to address upcoming maturities.
We believe today’s landscape creates a compelling backdrop that will reward disciplined, discerning investors. Supported by stable institutional capital with no retail fund exposure, Brinley’s strategy continues to be anchored in rigorous underwriting discipline focused on fundamental quality and downside protection. As a result, we believe we continue to be well positioned in the current market with our patient and prudent investing approach.
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.
- KBRA DLD, as of 9/30/26.
- CME FedWatch Tool, as of 10/18/26.
- Pitchbook LCD Private Credit and Middle Market Weekly Wrap, as of 10/15/26.
- Pitchbook LCD Q3 2026 US Credit Markets Quarterly Wrap (“Q3 US Loan Market Wrap”), as of 9/30/26.
- The Wall Street Journal, “A $300 Billion Debt Wall is Looming Over Private-Equity Backed Companies,” as of 10/27/26.
Q3 2026 Brinley Market Minute
November 2026
The private credit market experienced a quiet third quarter as direct lending volume fell to the lowest level in three years, extending the slowdown that began earlier in 2026.1
Several persistent macroeconomic pressures shaped the backdrop. The Federal Reserve raised interest rates for the first time in nearly two years, with potential for another increase before year-end.2 The conflict in the Middle East continued to weigh on energy markets, inflation, and the broader economic outlook, and unresolved questions around AI disruption added to investor caution.2
However, the softer headline transaction volumes tell only part of the story. Despite slower deal flow:
We believe this environment creates an attractive opportunity for lenders to deploy selectively at favorable risk-adjusted returns.
Q3 2023 Private Credit Snapshot
Third quarter private credit issuance fell 55% year-over-year to $39 billion, constituting the lowest quarterly total since 2023.1 This brought the year-to-date total to $152 billion, which is nearly 30% behind the year-ago period.1
The decline was driven primarily by opportunistic transactions. Refinancing and dividend recapitalizations, which surged in 2025, accounted for most of the year-over-year drop1. Refinancing transactions declined 65% in the quarter and roughly 50% year-to-date, while dividend recapitalizations saw a steeper 85% decline in the quarter and a 70% decline year-to-date.1
Buyout and add-on M&A volume also fell 45% in the quarter, but strong momentum from earlier in the year helped cushion the pullback, keeping the year-to-date decline at just 12%.1
The slowdown was most pronounced in software1. Volume tied to software transactions declined 85% year-over-year with underlying software borrowers representing only 7% of U.S. direct lending activity in the third quarter, which is a
notable shift from the sector’s 20% average quarterly share since 2024.1
Terms Remain Favorable to Lenders
The pullback in transaction volume coincided with measurably improved terms across pricing and structure. This shift has been supported by a contraction in available private credit capital, driven in part by liquidity pressures across non-traded BDCs. Non-traded BDC redemptions totaled $15 billion through the first half of the year, even after funds enforced quarterly 5% redemption caps.3 The surge in outflows, combined with a slowdown in inflows from new investors, has constrained capital supply and reinforced discipline across the private credit asset class.3
Across recently evaluated deals at Brinley, we have seen a pricing floor of approximately S+5.00% on high-quality credits, with only a small fraction of deals clearing tighter than that. Pricing on software and more “storied” credits has been far more varied, ranging from the mid-to-high 500s and extending into the 600s with more OID versus the rest of the market, a sign that lenders are differentiating much more sharply by credit quality.
Competition with the BSL Market
Broadly Syndicated Loan (“BSL”) new issuance in the third quarter declined 21% year-over-year, but LBO and M&A activity proved to be a bright spot, increasing 13% year-over-year.4 This trend was also apparent in the year-to-date period with LBO and M&A increasing 16%, despite total activity trailing last year’s pace by 11%.4
The public market strength was underpinned by aggressive pricing as average new issue spreads for BSL LBO transactions compressed to S+3.08% during the third quarter, the tightest level since 2020.4 The attractive bank pricing provided an alternative execution pathway for larger borrowers, enabling BSL lenders to refinance a record $16 billion of direct lending loans during the quarter.4 It also fueled an end-of-quarter surge with BSL LBO and M&A financing climbing to $31 billion in September, marking the highest monthly total since early 2022.4
We are frequently asked how we view t his competitive dynamic. Our perspective remains that there is room for both markets to grow, with each providing distinct benefits. In situations requiring certainty of execution, speed, customized structural flexibility, and long-term partnership, we see sponsors and borrowers continuing to value private credit and being willing to pay a premium for those benefits.
Looking Ahead: Brinley’s Outlook.
We expect private credit volume through the rest of the year to remain modestly active as interest rate trajectories, geopolitical developments, and evolving views on technology sector risks continue to weigh on market sentiment.
However, we do not view a quieter market as a weaker one. BDC redemptions and legacy software portfolio markdowns have prompted several direct lenders to reduce check sizes or temper deployment appetite. As we have observed in prior market cycles, the periods when other investors step back and capital supply contracts have historically been some of the most attractive times to deploy.
We do see a meaningful opportunity taking shape heading into 2027 with roughly $300 billion of broadly syndicated loans scheduled to mature in 2028 and 2029.5 Those figures are well above recent years, when an average of roughly $60 billion came due over a comparable two-year window.5 Higher borrowing costs have made this debt more difficult and expensive to refinance, and software borrowers, which have recently fallen out of favor due to AI concerns, account for roughly a third of the total.⁵ We believe this refinancing need will expand the opportunity set for private credit as borrowers and sponsors look for flexible, reliable capital to address upcoming maturities.
We believe today’s landscape creates a compelling backdrop that will reward disciplined, discerning investors. Supported by stable institutional capital with no retail fund exposure, Brinley’s strategy continues to be anchored in rigorous underwriting discipline focused on fundamental quality and downside protection. As a result, we believe we continue to be well positioned in the current market with our patient and prudent investing approach.
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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