Private Credit Slowdown: Tariffs Throw Cold Water on Deal Activity

What's New:

Direct lending deal activity has slowed significantly in early 2025, with both volume and deal count trailing last year's pace, according to PitchBook's April 2025 US Private Credit Monitor. The "Liberation Day" tariff announcement on April 2 has disrupted the M&A recovery many had anticipated in Q1.

Why It Matters: The private credit market faces competing pressures - decreased deal flow versus record fundraising. This imbalance could reshape competitive dynamics between direct lenders and broadly syndicated loan (BSL) markets, with implications for borrowers, lenders, and investors across the credit landscape.

Key Insights:

• Capital imbalance is creating a lender-friendly environment with improving yields (25-50 bps) and incremental OIDs, though intense fundraising is preventing more dramatic spread widening.

• Market uncertainty following the "Liberation Day" tariffs caused a 15-day BSL market shutdown, the longest since 2020, opening opportunities for direct lenders offering execution certainty.

• Sector shift toward healthcare (21% of deals, up from 15%) signals potential defensiveness as lenders prioritize less cyclical industries amid economic uncertainty.

• Refinancing dynamics are evolving rapidly, with both BSL-to-direct and direct-to-BSL refinancings providing strategic options for borrowers seeking optimal terms and conditions.

Big Picture Drivers:

• Policy disruption from the April 2 "Liberation Day" tariffs created market uncertainty, leading to a 15-day shutdown of BSL issuance - the longest since 2020.

• Healthcare dominance has emerged in 2025, capturing 21% of direct lending deal share, up from 15% in 2024, followed by technology and services sectors.

• Spread dynamics show expected pricing on private credit loans jumped after tariff announcements, though technical factors like heavy fundraising are capping potential spread widening.

• Competition between BSL and direct lending markets remains fierce, with borrowers actively refinancing between markets to secure optimal terms.

• CLO demand has reached record levels, with $14.4 billion in middle market/private credit CLO issuance through April - 15% ahead of last year's pace.

By The Numbers:

• $150B+ dry powder remains available to direct lenders, providing ample market liquidity despite slower deal flow

• 21% of direct lending deals are now in healthcare, making it the top sector in 2025

• 8% of market participants expect unitranche loans to price below S+500 (April), down from 45% in February

• S+475 pricing on Boeing's Digital Aviation Solutions assets sale to Thoma Bravo, demonstrating competitive direct lending pricing remains

Key Trends to Watch:

• Lender creativity may increase as direct lenders look beyond traditional LBOs toward add-ons, BSL refinancings, and non-sponsored deals to deploy capital.

• BSL takeouts of direct lending deals have remained active as many companies seek to refinance their private credit facilities in the public markets.

• Unitranche pricing will be closely monitored as evidence suggests a notable portion of facilities now price below S+500, reflecting intense competition.

• AUM growth in direct lending continues steadily with fundraising nearing 2021 peak levels despite slower deployment rates.

The Wrap:

While market participants had hoped for a 2025 rebound in M&A activity, the private credit market now finds itself in an increasingly competitive position with abundant capital chasing fewer deals. This environment creates both challenges and opportunities across the lending landscape, with the balance of power potentially shifting as conditions evolve.