Matrix’s Capital Advisory Investment Banking Group
John J. Whalen, M. Ryan Weir, Jr.

Click here for print friendly PDF version

Market Overview

Overview

The US leveraged loan market kicked off 2025 with historic issuance, but momentum faded quickly. January’s record $215 billion in volume gave way to rising volatility, equity market weakness, and tariff-related uncertainty, dampening investor sentiment. Retail outflows accelerated, secondary prices dropped, and risk appetite declined, particularly for lower-rated borrowers. Despite the late-quarter slump, total Q1 volume reached $355 billion—the fourth-highest on record—thanks to early repricing activity and a rebound in M&A-driven issuance.

Market Activity

Q1 2025 generated $355 billion in total leveraged loan volume, anchored by January’s $215 billion surge. Repricings dominated early activity but stalled in March amid investor caution, with monthly volume plunging to $8.9 billion from $138 billion in January. New-money M&A issuance totaled $64.6 billion, up 70% YoY, driven by a rise in both LBOs and strategic acquisitions. The syndicated market regained some ground from private credit as several direct-lending deals were refinanced with cheaper broadly syndicated loans (BSL), with $8.8 billion of private credit debt replaced. Despite volatility, the non-refi pipeline showed strength, with M&A and dividend recaps comprising a growing share of new issuance.

Borrowing Costs and Investor Demand

After tightening sharply in January, spreads widened into March, especially for lower-rated borrowers. B-minus new issue spreads rose to S+407 bps – the highest since October 2024. However, average spreads remain historically tight, especially for BB-rated names (S+230). Retail investors pulled $4.4 billion from the loan asset class during March, while CLO issuance held strong, totaling $48.6 billion in Q1. CLO demand kept loan spreads grounded, but the imbalance between demand and actual loan supply began to even out as more new-money deals came to market. Even with tighter spreads earlier in the quarter, increased market volatility muted investor enthusiasm by quarter-end.

Private Credit Lenders

Private credit lenders faced stiffer competition from syndicated markets as BSL refis outpaced direct lending takeouts. While private credit remains flush with capital, sourcing assets proved challenging, especially as more borrowers returned to public markets for cost savings. Although deal volume lagged expectations, large lenders continued to dominate, with top firms controlling a growing share of fundraising. Partnerships between banks and private credit firms, such as Apollo-Citi and JPMorgan’s origination platform, are proliferating. PIK usage and flexible deal terms remain competitive advantages, particularly for middle market borrowers in volatile conditions.

Mergers & Acquisitions and Dividend Recaps

Q1 M&A activity was strong, led by higher-rated borrowers. LBO volume rose 44% YoY, and M&A issuance overall
jumped 70%. Dividend recapitalizations totaled $27 billion, just shy of Q1 2021’s record. Most larger recap deals were
executed early in the quarter, while March saw a pivot toward smaller add-ons. Rising yields and widening discounts began to curb enthusiasm, though borrowers continued to capitalize on strong early-quarter demand.

Market Outlook

The leveraged loan market enters Q2 on softer footing, with volatility reintroducing pricing pressure, especially for lower-rated credits. While M&A pipelines remain healthy and investor appetite for floating-rate assets supports issuance, recent tariff developments in early April heighten economic uncertainty and underscore the importance of locking in financing capacity and flexibility now. CLO issuance remains robust, though future demand may hinge on evolving global macro conditions and tariff-driven disruptions. Private credit continues to compete actively; however, borrower migration toward more cost-effective broadly syndicated loans may reshape the financing landscape. Market participants should closely monitor funding conditions, maintaining agility in light of regulatory, tariff, and election-year policy uncertainties.

 

Broadly Syndicated Loans

Market Update – Overarching Themes

 

US Leveraged Loan Volume

Key Takeaways:
• Repricing wave fades following a record-setting start, as secondary market weakness dampens momentum
• Retail investors pull over $4 billion from the loan market in March, even as CLO issuance remains strong
• LBO and acquisition-related issuance rises to a three-year high, helping balance supply in Q1
• January’s surge propels Q1 to become the fourth-busiest quarter on record
• Rising volatility in March pushes new-issue spreads wider, particularly for lower-rated borrowers

The year kicked off with exceptional momentum, as overall activity surged to a record $215 billion in January, driven largely by a flurry of repricings. Speculative-grade borrowers moved swiftly to capitalize on highly favorable market conditions. However, by March, volume had dropped sharply to just $47.7 billion – the second-lowest monthly total in the past 15 months – marking the near-complete stall of the repricing trend.

Despite the March slowdown, first-quarter activity still totaled $355 billion, making it the fourth-highest quarter on record. Repricings alone accounted for 52% of year-to-date volume, with another 18% linked to refinancing transactions.

Repricing activity effectively came to a halt in March as the U.S. leveraged loan market faced renewed pressure. Mounting volatility and rising uncertainty led investors to reassess risk. Concerns over a potential recession and rekindled inflation – fueled by tariff headlines and White House commentary – cast a shadow across markets, sending secondary loan prices into decline.

Source: PitchBook | LCD • Data through March 31, 2025
*Reflects repricings and extensions done via an amendment process only

U.S. leveraged loan market momentum faded after a record-breaking January, as tariff concerns, market volatility, and weakening borrower fundamentals dampened sentiment and cooled investor risk appetite, leading to wider pricing flexes and sidelined syndications.

Despite the headwinds and March marking the first negative return month since October 2023, the primary market remained active, with dealmaking continuing and M&A-driven supply reaching a three-year high for Q1, though borrowing costs climbed from January’s lows.

Q1 2025 institutional loan issuance reached $144.5 billion (ex-repricings), marking the strongest first-quarter performance since 2021 and well above the post-GFC average of ~$100 billion – highlighting borrowers’ urgency to lock in financing despite shifting market conditions.

The composition of volume continued to rebalance, with refinancing activity falling to 45% of total issuance (from 59% in Q1 2024), while non-refinancing issuance – key to net supply – climbed to $79.1 billion, signaling healthier inflows for loan investors amid tighter windows for opportunistic deals.

Source: PitchBook | LCD • Data through March 31, 2025
*Excludes repricing and extension amendments

 

Borrower Risk Ratings/Investor Demand

First-quarter loan issuance (excluding repricings and extensions) reached $144.5 billion – the fastest Q1 pace since 2021 and well above the post-GFC average. Net new supply increased as refinancing activity declined to 45%, while M&A-related issuance and dividend recapitalizations contributed meaningfully, with the latter running at a record pace of $24.4 billion year-to-date.

As market volatility increased and risk appetite waned, new-issue spreads widened and B-minus rated borrowers saw reduced participation, accounting for just 24% of volume. In contrast, issuance for companies rated B or B-plus rose to 45%, the highest in two years.

CLO issuance remained strong despite market volatility, with managers printing $48.6 billion in new deals during Q1 – nearly matching last year’s pace and keeping 2025 on track to outpace 2024’s record levels.

Retail sentiment weakened notably in late Q1, with $4.4 billion in outflows from loan funds over four weeks, bringing total measurable demand to $51.3 billion – down from Q4 2024 but consistent with early 2024 levels.

Source: PitchBook | LCD • Data through March 31, 2025

 

Pricing Trends

First-quarter average spreads remained tight, supported by borrower-friendly conditions in January. Loans to B-minus and B-flat rated companies cleared at S+373 and S+334 – the lowest levels since the Global Financial Crisis – while BB-minus spreads tightened to S+230, the lowest since Q4 2019.

However, investor risk appetite faded as the quarter progressed. Spreads for B-flat and B-minus borrowers widened by about 40 bps from January to March, with B-minus spreads ending the quarter at S+407 – the highest since October, though still below most 2024 levels.

M&A activity has been dominated by higher-rated borrowers, with B-minus rated companies accounting for just 14% of Q1 volume – the lowest in two years – down from a 45% quarterly average in 2021. Though these borrowers regained ground in 2024 amid tighter spreads, large B-minus LBOs remain rare, with only one $1B+ deal tracked this quarter.

As market volatility increased in March, M&A-related loan spreads widened to S+372 (up from S+324 in January), while original issue discounts deepened and yields to maturity rose to 8.59%. Despite this uptick, spreads remain near decade lows and yields are still well below 2022–2023 levels.

Source: PitchBook | LCD • Data through March 31, 2025

 

Maturity Wall & Flex Activity

In 2023, speculative-grade companies aggressively refinanced debt, significantly reducing the near-term maturity wall, while a record wave of repricings helped lower borrowing costs across the board.

However, as new-issue spreads widened and investor risk appetite declined in early 2025, refinancing activity slowed, narrowing the window for further maturity extensions and shifting more issuance toward net new supply.

Lending conditions tightened in March as investor demand softened, leading to a more balanced flex environment; while borrower-friendly flexes still edged out, 10 deals required pricing concessions – the most since March 2022.

Since late February, seven transactions were pulled from the market, including six rated B or B-minus, with five of those tied to repricing efforts, highlighting diminished appetite for riskier credits.

Source: PitchBook | LCD • Data through March 31, 2025

 

Leverage Statistics

Average debt multiples of large corporate LBOs were relatively unchanged from the prior quarter increasing  from 4.68x in 4Q24 to 4.70x at 1Q25.

In the near term, equity contributions appear to be stabilizing around the high 40% range, reflecting cautious rebalancing by sponsors amid evolving market conditions.

Source: PitchBook | LCD • Data through March 31, 2025

 

EBITDA Adjustments and Synergies

EBITDA adjustments for M&A deals have rebounded in 1Q25 to 10.88%, the highest level since 2021, signaling increased reliance on add-backs and pro forma adjustments to bolster earnings as dealmaking activity picks up in a more selective credit environment.

Adjustments in LBO transactions have trended downward, falling to 8.84% in 1Q25 – well below the post-2010 average – suggesting tighter lender scrutiny and a possible shift toward more conservative underwriting standards in leveraged buyouts.

Synergy estimates have rebounded in recent periods, with LTM 1Q25 at 9.74%, marking a steady increase from the post-COVID low of 6.82% in 2022. This upward trend suggests renewed confidence in integration benefits as M&A activity gains momentum.

While still below the mid-2000s peak levels (13–15%), current synergy assumptions are in line with long-term averages, indicating a more disciplined yet optimistic approach by acquirers balancing cost-saving expectations with a cautious financing environment.

Source: PitchBook | LCD • Data through March 31, 2025

 

High Yield Bonds

High-yield bond issuance totaled $68.6 billion in Q1 2025, falling short of 2024’s $85 billion and far below the record $149 billion in Q1 2021, as late-quarter trade tensions and investor caution dampened what began as a promising issuance environment following a market-calming FOMC statement.

Despite volatile conditions, the market remained active, with deals clearing on 71% of March business days – more than any month since September – though widening spreads and risk-off sentiment led to muted bond-for-loan refinancing activity, which totaled just $7.7 billion, less than a third of Q1 2024 levels.

After peaking in late 2022, high-yield bond pricing has gradually moderated, with overall average yields falling from 10.44% in 4Q22 to 7.56% in 1Q25. This reflects improved market stability and investor confidence, despite ongoing macroeconomic headwinds.

Secured bonds continue to carry a pricing premium, averaging 8.06% in 1Q25 versus 7.30% for unsecured. However, the spread between the two has narrowed notably from nearly 1% in 4Q22 to just 0.76%, suggesting more balanced risk appetite across capital structures.

Source: PitchBook | LCD • Data through March 31, 2025

 

Private Credit

Strong demand and limited supply in the syndicated loan market created fertile ground for takeouts of private credit loans in Q1, as arrangers capitalized on tighter pricing and more favorable execution conditions, drawing deals like Avalara’s $2.5B term loan B away from private credit.

Despite ample dry powder and continued investor appetite, private credit lenders faced mounting challenges sourcing assets, with competition intensifying and syndication markets reclaiming ground – highlighting a shift in deal flow dynamics amid broader market volatility.

Pricing competition has tilted in favor of syndicated term loan B deals, with companies refinancing $8.8 billion of direct lending debt in Q1 2025 – achieving average spread savings of 260 bps. This continues a trend from Q1 2024, when borrowers cut spreads by an even larger 290 bps, particularly when replacing second-lien private debt with first-lien syndicated loans.

Despite expectations of a dealmaking rebound, M&A activity remained muted in Q1, limiting new opportunities for private credit and intensifying pressure from BSL competition, as regulatory uncertainty and tariffs dampened sentiment across both markets.

Source: PitchBook | LCD • Data through March 31, 2025

Direct lending dominated private debt fundraising in 2024, reaching $119.6 billion – its second-highest total on record and a sharp rebound from 2023 – underscoring investor preference for floating-rate, senior-secured strategies amid continued market uncertainty.

Mezzanine, distressed, and special situations strategies saw notable pullbacks, with mezzanine capital falling to just $6.77 billion – its lowest level in over a decade while distressed and special situations also declined sharply, signaling reduced appetite for higher-risk, opportunistic plays in a more cautious market.

Direct lending activity for PE-backed borrowers remained robust in 1Q25, with 130 deals totaling an estimated $33.92 billion – marking a slowdown from the record-setting pace in 2024 but still significantly above pre-2021 quarterly norms, reflecting sustained sponsor demand for private debt solutions.

The record surge in both deal count and volume during 2024 – peaking at 183 deals and $57.58 billion in 2Q24 – highlighted a period of aggressive deployment, likely driven by a backlog of delayed transactions and improved pricing dynamics before macro volatility re-emerged in early 2025.

1. Source: PitchBook | LCD • Data through December 31, 2024
2. Source: PitchBook | LCD • Data through March 31, 2025

Glossary of Terms/Methodology

Dataset covered:

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.

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.