Debt Download

In the News

• The tariffs announced by the US—and their subsequent pause—triggered uncertainty and brought the broadly syndicated loan (BSL) markets to a record-breaking halt in April. Through April 20, supply became “all but absent,” with $1.6 billion net of associated repayments. Even though demand well exceeded that, lenders enjoyed newfound leverage in the market, with a 1:1 flex score, compared with 2:1 in March, putting up the most lender-friendly reading since March 2023 (a period marked by regional bank turmoil). Even that ratio, however, “understates the case,” according to Covenant Review, as five loans were pulled prior to pricing. The average all-in single-B clearing spread rose to S+412.5 (S+387.5/99.25 OID), from S+359 (S+340/99.4 OID). Investment grade bonds had also suffered quickly widening spreads, though not nearly so steep as for lower-rated issuers. The investment grade market, therefore, saw modest activity, as companies “slowly tiptoed back.” The European BSL market similarly ground to a “virtual standstill,” though there is a “glimmer of hope” of the primary market reopening. 
• The US debt markets, on the other hand, “are not expected to fully reopen until investors see a ceiling on spread widening and get more clarity on tariff policy,” according to Debtwire—though this is predicated on seeing “a few calm days” with fewer announcements that roil the markets. Meanwhile, pricier loans and pulled deals are raising the specter of past financial crunches, including hung debt and tighter documentation. In fact, the buyout of an Apollo-backed firm has left lenders with $2.2 billion in hung debt, which was followed by $2.35 billion in hung debt for the buyout of the Patterson Cos., and more such occurrences are likely. 
• The seizing of the debt market poses a particular threat to private equity groups that are already confounded by the “incredibly challenging” conditions that have “brought dealmaking to a near standstill.” Investors are facing tensions between acting too quickly on deals “they might want to back out of once the [tariff] pause is lifted” and intense pressure for returns ahead of the “usual summer lull.” However, that pick-up is looking unlikely as “private equity will go really risk off for a while.” Exit activity by fund investors will also keep activity muted, including the expected pull-back by Chinese state-backed funds. 
• The turmoil has given the private sector “some gains” against BSL, which, as we highlighted in last month’s Debt Download, lately had notched some wins in the ongoing competition. During a “market dislocation,” private credit is seen as having the edge over BSLs as it is not subject to the risks and uncertainty of a syndication period. Even so, spreads and fees in the private space have risen largely in line with BSLs, with pricing hitting around S+525-575 in the week after the tariff announcement, which is about 100-150 bps higher than it had been, and fees have gone up by around one point, according to LCD. Since then, pricing is reported to have gone up an additional 50 basis points, according to Debtwire.
• The funding certainty of private credit has also turned out to be a boon for BSL lenders themselves, which are approaching private lenders in an attempt to off-load committed debt. Private lenders are, for now, in a position to accommodate, sitting on “dry powder” for closed-end private credit funds totaling around $433 billion at the end of 2024, with 59% earmarked for direct lending. Looking ahead, a recent LCD poll found a “spike in pricing expectations” among private lenders as a result of tariffs and related uncertainty. For its part, KKR predicts activity to be more “gradual” than initially expected, and lenders may be well-placed to take advantage of opportunities so long as they have a dedicated workout group and legal resources and are lead or sole lender. One tactic currently being pursued by private lenders is convincing sponsors to transform their buyout plans to dividend deals.   
• A Bloomberg analysis concludes the trade war “is already priming financial markets for the next wave of corporate defaults.” Fitch Ratings likewise pinpoints 16% of corporate issuers being highly levered and likely to face particular challenges, with $50 billion in debt coming due in 2026 and $530 billion the following two years in an environment that is not expected to be conducive to refinancing and repricing transactions. In fact, Bank of America Global Research sees a 10% drop in loan issuance in 2025 from 2024, a huge swing from the previously projected gains in the market. Moody’s Ratings similarly boosted its anticipated default rate for speculative-grade companies to 3.1% at the end of the year, well up from the previous expectation of 2.5%. And even before the tariff-related turmoil, private credit was said to be “at the early stages of a credit distress cycle,” according to Private Debt Investor. The recent turmoil only highlighted this outlook, as private debt is expected “to be at the epicenter of any credit dislocations.”

Goodwin Insights

For this week’s Debt Download, Goodwin counsel Nate Cunningham and Carrie E. Miller and associate Justin Shields provide an overview of the current US tariff landscape. Their analysis breaks down the impact of the tariffs on specific industries and regions, as well as expectations of reductions or expansions. Check out The Trump Tariffs Update. 

In Case You Missed It – Check out these other recent Goodwin publications: What’s Happening at the SEC?; How Financial Regulation Is Shifting Under Trump; SEC Disclosure and Proxy Matters Under the Trump Administration; Delaware Creates More Corporate Clarity and Overhauls Rules Governing Conflicted Transactions; M&A Deal Timelines Rise Across the Globe 

For inquiries regarding Goodwin’s Debt Download or our Debt Finance practice, please contact Dylan S. Brown and Reid Bagwell.

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