Matrix’s Capital Advisory Investment Banking Group
John J. Whalen, M. Ryan Weir, Jr., Garrett C. Novotny, CFA, CPA

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Market Overview

Overview

The US leveraged loan market capped off a record-breaking year in 2024, marking $1.4 trillion in total activity, driven largely by repricings and refinancings. Despite a favorable fundamental backdrop, net supply shortages persisted, creating a significant technical imbalance and compressing spreads to multi-year lows. December alone saw $193 billion in loan activity, setting an all-time monthly record. While speculative-grade borrowers dominated the market, risk appetite grew across the credit spectrum, supported by strong investor demand from CLOs and retail funds. As the year concluded, the focus shifted to opportunistic deals amid heightened anticipation for robust M&A activity in 2025.

Market Activity

Q4 2024 was the second-busiest quarter on record, with $400 billion in primary market activity, just shy of the Q2 peak. Repricing activity surged to $279 billion, bringing the annual total to $757 billion, the highest on record. New-issue loan volumes reached $501 billion for the year, doubling 2023 levels but still trailing 2021 highs. Non-refinancing issuance accounted for $242 billion, highlighting a supply-demand mismatch as borrowers scrambled to refinance near-term maturities. M&A-related issuance improved in Q4 but remained below historical averages, reflecting lingering caution in the private equity sector.

Borrowing Costs and Investor Demand

Borrowing costs continued their downward trajectory, with spreads for speculative-grade borrowers reaching post-GFC lows. In Q4, B-minus issuers saw spreads tighten to S+397, while BB-minus issuers cleared at S+248. The appetite for leveraged loans surged, supported by record CLO issuance of $202 billion and $6.4 billion in retail fund inflows during Q4. This robust demand further compressed spreads and bolstered favorable credit conditions, even for riskier borrowers. However, as repricing opportunities became more limited, future spread tightening is expected to moderate.

Private Credit Lenders

Private credit maintained its competitive edge, leveraging flexible terms and reduced regulatory scrutiny to capture deal flow. The market’s rapid growth, however, showed signs of stabilization as fundraising slowed. Partnerships between private credit lenders and traditional banks, such as Apollo’s $25 billion venture with Citigroup, expanded channels for deal origination. The default rate in private credit rose modestly to 1.95%, remaining below public credit benchmarks. As lenders focus on sourcing assets, 2025 is expected to see increased activity in asset-backed financing and new lending partnerships.

Mergers & Acquisitions and Dividend Recaps

M&A-related loan issuance totaled $28 billion in Q4, marking a 67% year-over-year increase but still trailing pre-pandemic averages. Sponsors extracted $81.3 billion via dividend recapitalizations in 2024, the second-highest annual total on record. Large recap deals, such as Belron’s $4.69 billion transaction, underscored private equity’s push to return capital amid limited exit opportunities. While the M&A pipeline for 2025 looks promising, higher leverage ratios and rising exit valuations suggest cautious optimism. Dividend recapitalizations may decline as M&A activity accelerates.

Market Outlook

The US leveraged loan market enters 2025 with momentum but also caution. While demand remains robust, the imbalance between loan supply and investor appetite is likely to persist, maintaining downward pressure on borrowing costs. The anticipated rise in M&A activity may offset repricing volumes, introducing new net supply to the market. Private credit is expected to remain a key player, with opportunities to finance smaller and lower-rated borrowers. However, risks such as geopolitical uncertainties and inflationary pressures warrant vigilance. Borrowers and investors alike should prepare for an evolving market landscape, emphasizing proactive management of liquidity and risk.

Broadly Syndicated Loans

Market Update – Overarching Themes

US Leveraged Loan Volume

Strong 4th Quarter  –  Repricings dominate

Primary market activity reached $400 billion in the fourth quarter, marking the second-highest total on record and falling just 1% below the $405 billion peak seen in Q2 2024.

December’s loan production capped Q4 with record-breaking volume as speculative-grade borrowers capitalized on exceptionally favorable credit conditions at an unprecedented pace before the year-end market closure. Total activity reached $193 billion in December, the highest for any full calendar month and more than four times the historical monthly average of $46 billion. Notably, December, traditionally one of the slowest months in the leveraged finance market, has averaged just $27 billion in activity over the past 15 years.

Most market participants anticipate M&A volume to rise in 2025, but 2024 ended with the largest supply shortage on record, estimated at $192 billion. This persistent technical imbalance throughout the year drove clearing yields to multiyear lows and fueled unprecedented volumes of refinancings and repricings.

Source: PitchBook | LCD • Data through December 31, 2024       *Reflects repricings and extensions done via an amendment process only

Excluding repricings that merely lower spreads and maturity extension amendments, new-issue loan volume reached $501 billion in 2024. While this figure is more than double the levels seen in 2023 and 2022, it trails 2021 by 18% and falls just shy of the $503 billion recorded in 2017.

Meanwhile, issuance unrelated to refinancing, which constitutes net supply for loan investors, totaled $242 billion in 2024. This represents a 45% decline from 2021 and aligns closely with the 10-year average.

The annual repricing for 2024 totaled an unprecedented $757 billion, far exceeding the previous record of $432 billion in 2017. Including re-syndicated repricings in the 2024 cohort, this pushes the total to nearly $800 billion, representing approximately 60% of all outstanding loans at the start of the year and generating $4.1 billion in annual interest expense savings for speculative-grade borrowers.

However, the average spread savings from repricings has been shrinking, as many of the latest deals involve resetting loans issued earlier in the year, including some repriced in Q1 and Q2 after their soft call protection expired. On average, fourth-quarter transactions reduced spreads by 48 basis points, lowering the new spread to S+294. By comparison, first-quarter repricings cut spreads by 53 basis points, bringing the average spread down to S+322.

Source: PitchBook | LCD • Data through December 31, 2024

Borrower Risk Ratings/Investor Demand

As investor appetite for risk grew last year, the ratings diversification in the new-issue market shifted closer to historical averages, marking a recovery from the pronounced flight to quality seen in 2023.

Borrowers rated B-minus by at least one ratings agency represented 36% of 2024 issuance, up from 21% in 2023 and approaching the 40% level recorded in 2021. Meanwhile, issuers rated BB-minus or higher accounted for 21% of new deals, a decrease from the record 28% in 2023.

LCD estimates that retail loan funds saw $6.44 billion of inflows in the fourth quarter (including monthly reporters), marking the highest level since Q1 2022. Combined with CLO issuance of $59.5 billion, total measurable demand reached $65.9 billion, the highest in three years.

For the full year, LCD calculates a record-breaking $192 billion gap between measurable demand and net supply, as measured by the change in outstandings tracked by the index. This represents a significant increase from $115 billion in 2023 and $87 billion in 2021.

Source: PitchBook | LCD • Data through December 31, 2024

Pricing Trends / Dividend Recap Activity

This significant technical imbalance continued to exert downward pressure on new-issue spreads across the entire credit quality spectrum. In the fourth quarter, riskier borrowers with B-minus or B-flat ratings saw their spreads tighten to S+397 and S+354, respectively—the lowest levels recorded since the Global Financial Crisis. At the higher end of the spectrum, borrowers rated B+ and BB-minus cleared spreads at S+299.5 and S+248.5, respectively, marking the lowest levels since Q1 2020.

In 2024, sponsors extracted $33.4 billion through dividends financed in the broadly syndicated loan (BSL) market, just 5% below the $35.1 billion recorded in 2021 and roughly double the combined total for 2022 and 2023. At the same time, dividend payouts continued to grow. The median dividend size for recapitalizations financed in the broadly syndicated market last year reached $300 million, matching the 2021 figure as the highest in at least six years. Additionally, LCD tracked 11 transactions in 2024 where the dividend exceeded $800 million.

Source: PitchBook | LCD • Data through December 31, 2024

Maturity Wall & Interest Coverage

With new-issue spreads tightening to multiyear lows, speculative-grade borrowers raised a record $259 billion in refinancing-related loans in 2024, significantly reducing the near-term maturity wall. Of this total, approximately $96 billion, or 37%, was issued by companies rated B-minus by at least one ratings agency, marking the highest volume and share on record. As clearing spreads on these higher-risk loans fell to their lowest levels since the Global Financial Crisis and investor risk appetite increased, borrowers seized the opportunity to address near-term maturities, lower the cost of debt, or both, under highly favorable credit conditions.

As leverage ratios edged higher, interest coverage ratios saw a slight decline, falling to 3.1x for all deals and 2.3x for buyouts. Both figures represent the lowest levels recorded since the Global Financial Crisis.

Source: PitchBook | LCD • Data through December 31, 2024

Leverage Statistics

Average debt multiples of large corporate LBOs increased from 4.54x in 2023 to 4.76x at year-end 2024.

Equity contributions declined modestly from ~50% in 2023 to ~45% in 2024.

Source: PitchBook | LCD • Data through December 31, 2024

EBITDA Adjustments and Synergies

Adjustments as a percentage of EBITDA have been steadily decreasing on an aggregate basis over the course of the past few years.

In 2024, adjustments as a percentage of EBITDA continued to remain in check, hovering near its lowest level since 2009 amidst the Great Financial Crisis. 4Q24 transaction activity did drive some modest expansion in the annual figure due to robust market activity.

The average synergies/EBITDA ratio increased from 8.6% in 2019 to 9.2% in 2024. Underwriters remain wary of synergistic adjustments to EBITDA. 4Q24 transaction activity did drive some modest expansion in the annual figure due to robust market activity.

Source: PitchBook | LCD • Data through December 31, 2024

High Yield Bonds

Market indicators, driven by issuance trends, pointed to favorable conditions for high-yield borrowers at year-end, following the swift resolution of the U.S. elections that cleared a cloud of uncertainty. While potential turbulence looms—particularly with the incoming Trump administration’s anticipated shifts in trade and healthcare policies—the market benefited from strong momentum, as investors absorbed $281.6 billion in high-yield supply during 2024. This marked the highest annual total since 2021’s record $464.5 billion. For context, 2024’s issuance surpassed the combined totals of 2022 ($102.3 billion) and 2023 ($176.1 billion).

The previous senior unsecured issuance surges saw senior notes clearing the primary at an average yield of 5.65% in 2020 and a record-low 5.11% in 2021. However, costs surged to over 7% in 2022 and nearly 8.5% in 2023, the latter marking the highest level since 2009. In 2024, unsecured costs eased slightly to 7.57%, with the fourth quarter reflecting a similar average. While rates rose between the third and fourth quarters, the increase was offset by a consistent tightening of spreads throughout 2024. Secured spreads fluctuated during the year but showed a downward trend following the Fed’s dovish pivot in November 2023. New-issue high-yield senior bonds cleared the primary at monthly averages ranging from T+295 to T+344 in the fourth quarter, a notable improvement from T+434 in January 2024 and the September 2023 peak of T+517.

Source: PitchBook | LCD • Data through December 31, 2024

Private Credit

In the fourth quarter, most refinancing transactions involved deals transitioning from private credit to the broadly syndicated loan (BSL) market, where spreads proved highly attractive. Speculative-grade borrowers rated B or B-minus benefited from the tightest new-issue spreads since the Global Financial Crisis, at S+353.5 and S+397, respectively. Meanwhile, private credit has made strides in capturing market share from the BSL market’s smaller borrowers. According to an LCD analysis, the median loan size in the U.S. BSL market has risen to $860 million, nearly 40% higher than pre-pandemic levels. Borrowers with less than $50 million of EBITDA have virtually disappeared from the BSL market, reflecting this shift.

The private credit market is navigating the aftermath of a repricing wave that began about a year ago, significantly reducing spreads. In 2024, refinancing transactions accounted for 20% of all deals by count—the highest proportion recorded in any year since the start of the decade, according to LCD data.

Debt issuers in both markets have capitalized on lower borrowing costs, easing financial pressure on leveraged companies. These reduced costs are anticipated to drive increased deal activity, bolstering the outlook for transaction volumes in 2025.

Source: PitchBook | LCD • Data through December 31, 2024

Private credit investors, looking ahead to 2025, can expect a resurgence of deal activity, steady-to-tighter spreads, and a renewed focus on private debt recovery levels as defaults rise.

Private equity sponsors have significant dry powder ready to deploy and are yearning for more exit opportunities after a challenging year.

The expectation among sponsors is that new deal volume should pick up in 2025 alongside pent-up M&A opportunities.

Private equity sponsors routinely use dual-tracking loans in private credit and the syndicated market to see where the best terms and pricing are available, with many credit platforms offering both options. Even as banks are keen to showcase the comeback of the syndicated loan market, direct lenders continue to lock up $1 billion+ deals at a steady clip.

1. Source: PitchBook • Data through March 31, 2024
2. Source: PitchBook | LCD • Data through December 31, 2024

Glossary of Terms/Methodology

Dataset covered:

Unless noted otherwise, all the data included in this report reflects the U.S. broadly syndicated leveraged loans market, as tracked by PitchBook LCD. With the exception of the section titled “Outstanding Institutional Market Statistics”, the data reflects the new-issue (primary) leveraged loan market. The dataset includes all leveraged loans syndicated in the U.S., including USD-denominated tranches of borrowers domiciled in Europe and other locations.

Secondary market analysis, i.e. “Outstanding Institutional Market Statistics” section is based on the Morningstar LSTA US Leveraged Loan Index.

Definitions and calculations methodologies:

Average Calculations: Unless noted otherwise, all averages are straight averages (not weighted by size).

Broadly Syndicated Loans: A broadly syndicated loan (BSL) is a large loan, typically exceeding $100 million, extended to a borrower by a group of lenders. These loans are arranged by one or several banks, known as arrangers, which then sell portions of the loan to a syndicate of banks, institutional investors, and other financial entities. BSLs are usually senior secured loans with floating interest rates tied to a benchmark like SOFR and may include covenants to protect lenders. Institutional term loans (Term Loan Bs), a subset of the broadly syndicated market, generally do not have financial maintenance covenants. BSLs tend to be rated by one of the major credit ratings agencies (S&P, Moody’s, or Fitch). They can also be traded in a secondary market for liquidity.

Covenant-lite: Loans that have bond-like financial incurrence covenants rather than the traditional maintenance covenants.

EBITDA: Reflects pro forma adjusted EBITDA, as provided in the Offering Memorandum during the loan syndication process.

High Yield: High yield bonds, also known as junk bonds, are bonds that offer higher interest rates due to their lower credit ratings compared to investment-grade bonds. These bonds are issued by companies or entities with higher risk of default. The higher yield compensates investors for the increased risk. High yield bonds are commonly used by companies to raise capital for growth, acquisitions, or refinancing. They can be traded in secondary markets, providing liquidity to investors.

Institutional Debt/Institutional Facilities: Tranches sold primarily to institutional investors, i.e. loan investors who are primarily funded by pooled funds. The funds can take the form of structured vehicles (CLOs), mutual funds, hedge funds, and pension funds. Institutional loan tranches traditionally have a bullet repayment with little (1% per annum) or no amortization, a longer maturity than a revolver or amortizing term loan and a spread of over 200 bps over a base rate. They are frequently subject to a pricing grid and sometimes carry call premiums/prepayment fees.

Interest Coverage Ratio: EBITDA to interest ratio at closing of each loan, based on pro forma adjusted EBITDA provided in the Offering Memorandum during the loan syndication process.

LBO: Acquisition of the majority share of a company by a private equity sponsor. Excludes recapitalizations, refinancings, and follow-on acquisitions.

Leverage Ratio: Debt to EBITDA ratio at closing of each loan, based on pro forma adjusted EBITDA provided in the Offering Memorandum during the loan syndication process.

Private Credit: Private credit refers to non-bank lending provided by private institutions, such as private equity firms, asset managers, and hedge funds, to companies. It serves issuers that may not have access to traditional bank loans or public debt markets, as well as those seeking financing for higher leveraged acquisitions or additional capital when traditional banks are more cautious. Private credit includes direct loans, mezzanine financing, and distressed debt, offering flexible terms and higher yields to compensate for the increased risk. Private credit loans tend not to be rated by the major credit ratings agencies and for most issuers are provided by a single lender vs. syndicate.

Pro-Rata Debt/Pro-Rata Facilities: Includes revolving credit and amortizing term loans, which are packaged together and usually syndicated to banks.

Recapitalization: A leveraged loan backing a recapitalization results in changes in the composition of an entity’s balance sheet mix between debt and equity either by 1) issuing debt to pay a dividend or repurchase stock, or 2) selling new equity, in some cases to repay debt.

Spread: Premium above a base rate; data reflects contractual spread at issuance of each loan.

Volume: The amount of loans launched into syndication during the specified time period. The date used for calculation is the bank meeting or lender call date of the transaction. In case of add-on loans, only the incremental amount is included. Extensions (A-to-E) or repricings done via an amendment process are not included in volume calculations.

Yield-to-maturity: The primary yield adjusted for the break price over the stated term of the facility.

 

Disclaimer

The contents of this publication are presented for informational purposes only by Matrix Capital Markets Group, Inc. and MCMG Capital Advisors, Inc. (“Matrix”), and nothing contained herein is an offer to sell or a solicitation to purchase any of the securities discussed. While Matrix believes the information presented in this publication is accurate, this publication is provided “AS IS” and without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranty of merchantability, fitness for a particular purpose, or non‐infringement. Matrix assumes no responsibility for errors or omissions in this presentation or other documents which may be contained in, referenced, or linked to this publication. Any recipient of this publication is expressly responsible to seek out its own professional advice with respect to the information contained herein.