H1’26 LevFin Primary Experiences Highs and Lows as Mega Deals Clear the Market Before AI Fears, Iran War Disrupt Activity

Reporting: Caroline Hagood, Geoff Burrows, Melina Chalkia
Financial Analysis: Martynas Juskys

The leveraged finance primary market experienced highs and lows in the first half of the year, with mega deals dominating the first quarter, before geopolitical and AI concerns altered second-quarter activity, according to market participants interviewed by Octus.

High-yield bond and loan issuance in the first half of the year surpassed the first half of 2025, both in deal count and volume, according to data compiled by Octus, with high-yield bond volume up 27% and leveraged loan volume up 13% year over year.

A strong improvement belies a turbulent year for the market, however. As leveraged buyout frenzy faded by the end of the first quarter, bankers and lawyers shifted to creative financings to address looming liabilities and the insatiable demand from the digital infrastructure buildout.

“We see this massive trillion-dollar demand for all types of financing to support various capital strategies,” Alfred Xue, global vice chair of Latham & Watkins’ banking and private credit practice, said regarding financing opportunities in the market. “It’s not just straight M&A and LBO financings for PE sponsors anymore.”

Mega Deals Lead First-Quarter Activity
The leveraged finance market opened 2026 with a wave of blockbuster leveraged buyouts and M&A deals that tested the depth of investor demand and fueled expectations of a dealmaking revival after a relatively subdued 2025.

The first major test was medical device maker Hologic’s $7.25 billion and €1.3 billion leveraged loans in January backing its $18.3 billion take-private by Blackstone and TPG. The offering drew strong demand, providing an early indication that investors were eager for large, sponsor-backed acquisitions.

Buyout activity continued in March with Electronic Arts’ record-breaking $18 billion debt package supporting the video game developer’s roughly $55 billion acquisition by a consortium composed of PIF, Silver Lake and Affinity Partners. The financing, the largest LBO debt package ever, was more than twice the book size despite launching amid AI-related concerns and geopolitical volatility in the market.

Several other mega deals came to market through early spring. Asset manager Janus Henderson launched a $2 billion loan in March funding its buyout by Trian Fund Management and General Catalyst Group Management, while an $8 billion cross-border debt package financing CD&R’s take-private of Bubble Wrap maker Sealed Air priced in early April after some document changes. Castrol’s deal bookended the first half’s string of large buyouts, with the oil lubricant brand closing its $3.75 billion debt financing in late June after months of premarketing and lender pushback on its joint venture Holdco structure. The cross-border debt financing supports Stonepeak’s acquisition of a majority interest in Castrol from BP, a deal expected to close by year-end.

One more large debt financing looms. The fate of the $110 billion acquisition of Warner Bros. Discovery by Paramount Skydance is uncertain following legal challenges to the media merger, including a proposed $50 billion debt package mixed between investment-grade and high-yield credit.

Software Scare and Iran War Temper Market Activity
After a strong start to the year, primary market participants navigated a range of risks that tested investor sentiment and dampened deal flow. While dealmaking did not halt to the extent that was seen in the aftermath of the so-called Liberation Day tariff announcement in 2025, dual concerns over software companies’ fragility and the Iran war began to temper activity and investor enthusiasm beginning in March.

“There are a lot of risks out there – geopolitical risks, AI, inflation,” said Jason Horowitz, head of U.S. high-yield bond investments at CIFC Asset Management. “High yield is a lot higher quality than it’s been historically, but it is still a risk asset.”

The software sector, previously a darling of the leveraged finance market, came under increased scrutiny as investors weighed the potential disruptions from AI amid a selloff. The weighted average yield on the 50 largest high-yield software bonds widened by roughly 200 bps from January to late March before partially recovering.

“There are definitely haves and have-nots in terms of market activity, [and] software faces some real headwinds,” said Justin Lee, co-head of the U.S. banking and finance group at Weil, Gotshal & Manges. “People who invest in software are used to getting best-in-class terms, and it’s just a bit of a change in terms of how people look at those.”

Issuance in the tech sector was largely put on hold throughout the spring while investors evaluated the software exposure of their existing portfolios. Several deals were caught in the crosshairs of software uncertainty.

The first sign of investor unease came when Deutsche Bank was forced to hold a portion of the debt financing the merger between Thoma Bravo-owned Conga with Pros’ business-to-business unit. The roughly $1.2 billion loan offering was put on hold in early February as early signs of AI’s disruptive effect on software as a service, or SaaS, businesses percolated.

Later, in March, Qualtrics paused a JPMorgan-led $5.3 billion debt offering backing its $6.75 billion acquisition of Press Ganey Forsta amid growing concerns about a “SaaSpocalypse.” The offering remains one of the market’s closely watched hung deals, reinforcing investor aversion toward financing large software credits in the near future.

By April, the leveraged finance market had entered a “wait and see mode” following the pipeline clearing in the first quarter. Beyond software concerns, the stagnation also stemmed from geopolitical uncertainty around the Iran war, which complicated issuance conditions for borrowers.

Investors weighed the repercussions of the war in their evaluation of BASF Coatings, which came to market in April for its cross-border debt financing supporting its acquisition by Carlyle. Volatility from the war went both ways, such as when Ineos Group delayed pricing on its cross-border refinancing in June as it appeared the conflict was reaching a resolution.

Across the board, spreads compressed in the first half of the year relative to 2025, according to Octus sub-investment-grade issuer data. The premium for B-rated loans widened, however, amid a flight to quality. The high-yield bond universe saw a more pronounced compression across ratings segments, owing to stronger fundamentals and health versus the loan market.

Data Center Buildout Demands New Money
As other sectors grappled with volatility and shifting investor sentiment, the leveraged finance market turned its attention to pouring capital into the buildout of the digital infrastructure economy.

AI infrastructure emerged as one of the most active sectors of new-money issuance. Data center operators, hyperscalers and neocloud companies tapped investors for billions of dollars to fund the rapid expansion of computing capacity, graphics processing unit processors and power infrastructure.

Much of that activity this year initially flowed through the high-yield bond market, including numerous debt financings tied to Core Scientific, Applied Digital and Cipher Digital.

As financing needs grew, issuers also turned to the leveraged loan market for fresh lenders and deal terms. In May, CoreWeave’s $3.1 billion delayed-draw term loan was the first of its kind to be brought to the leveraged loan market. The offering’s significant oversubscription and tightened final pricing revealed the depth of demand for AI infrastructure deals in the broadly syndicated loan, or BSL, market.

As the sector has matured and AI-related deals have come to the loan and bond markets, investors have become increasingly selective.

“We are seeing more dispersion within AI names now as some have seasoned,” said CIFC’s Horowitz. “Investors have had more time and desire to differentiate between the different credits. Not every data center bond is the same.”

Evolutions in the financing for the broader AI buildout have already materialized, such as the growing and urgent need for power to support the volume of data center construction and operation. Though investor selectivity is a concern, the fall pipeline of jumbo AI deals is expected to keep momentum for issuance, including debt tied to the takeout of a $15 billion bridge loan for Nexus Data Centers.

Software Refis: Bridges to Exits
While the data center buildout consumed billions of dollars of financing, market participants also focused on the rising maturity wall for SaaS companies caught in the crosshairs of AI advancements.

“That is an area we’re super focused on,” said Daniel Seale, global chair of Latham & Watkins’ banking and private credit practice. “Some companies have addressed it, many more will be addressing it, and it’s an area we see driving work into the market broadly.”

Pinched by high valuations stemming from LBOs in 2020 and 2021 and AI-induced uncertainty clouding future prospects, a host of sponsor-backed software businesses are saddled with near-dated maturities and little investor appetite for standard refinancings.

Quickly, the leveraged finance market established a playbook: offer concessions to lenders in the form of wider margins and tighter documentation in exchange for a bridge on maturities until the market got a better bearing on software valuations. The deals, first exemplified by Imprivata’s amend-and-extend, quickly became the perceived “winners” of the SaaS space.

Speaking about how companies and sponsors were addressing 2027 and 2028 maturities, Xue noted that they are looking at appropriate exits and bridging to that with an A&E.

Imprivata was followed by Cotality and Proofpoint, which both managed to close A&E transactions despite investor reticence to roll software exposure. Several more companies will look to test investor appetite for bridging software maturities in the second half of the year.

Loans with use of proceeds going toward A&Es saw the largest rise in the first half of the year relative to H1 2025, as seen below. Loans financing LBOs and for general corporate proceeds also were more common this year than last year. High-yield bonds financing general corporate proceeds and M&A activity were more common this first half than in the first half of 2025.

Post-Labor Day, Financing Opportunities Abound
Despite volatility and a rocky M&A calendar, the leveraged finance market demonstrated resilience during the first half of 2026. Deal flow continued across both the loan and bond markets, though demand became concentrated in stronger credits, refinancing opportunities and sectors insulated from macro volatility.

Deal selectivity is expected to remain a defining feature of the market into the rest of the year, though market participants say there remains appetite for borrowers with higher-quality deal structures.

“There’s still market receptivity to the right kinds of deals,”said Weil’s Lee. “Part of it is just finding the right opportunities, matching a buyer and a seller at a price that makes sense. I think we’ll continue to see that throughout the year and see winners and losers.”

Investors and issuers are now preparing for what many hope will be a busy fall, with several new-money offerings in the market already expected, including a roughly $4 billion package to finance Brink’s acquisition of NCR Atleos and an approximately $4 billion package backing Fertitta Entertainment’s take-private acquisition of Caesars Entertainment.

“Supply should be healthy in the second half of the year,” said Na Wei, global head of leveraged finance at Barclays. “Lots of deals being underwritten will come to the market in September and October, so from an investor perspective it will be nice to come back from the summer break and get involved in some real debut market transactions.”