Leveraged Finance Market Participants Cautiously Optimistic About Deal Pipeline; Investor Selectivity and AI Fears Persist

Leveraged finance professionals are generally hopeful about the pipeline of new deals to feed investor demand as they consider market conditions in the fourth quarter of 2025 and early next year.

Despite the government shutdown, uncertainty about interest rate cuts and the threat of tariffs continuing to loom, market participants say the primary is open, though new dealmaking has fallen short of expectations for this year.

“All of the reasons why we initially expected that M&A and LBO activity would pick up in 2025, such as inflation being under control and GPs facing pressure from LPs to return capital, still exist, but we need to see stability for that new issuance to come to fruition,” said Seth Painter, head of capital solutions at Antares Capital. “Ultimately, that type of activity in 2026 will be driven, in part, by rates and macro stability.”

Leveraged loan issuance in 2025 so far totals roughly $712 billion, and new issuance for the high-yield market totals over $276 billion, as of mid-October according to Octus data.

Primary Market Temperature

As new deal activity has picked up in recent weeks, supply is outpacing demand for the first time in months. The shift in dynamics has enabled investors to be more selective about deals, while sponsors are being strategic, market participants say.

As a result, several recent primary deals have received lackluster demand from the buyside and in some cases have been pulled from the market altogether.

Within the last month, pharmaceutical company Mallinckrodt-Endo pulled its $1.5 billion loan, while chemical producer Nouryon did the same with its dual-currency $5.8 billion loan, after both struggled to gain traction among investors for their refinancings. In addition, gaming operator Bally’s Corp. paused its deal after extending commitments and eliminating a minimum threshold, Octus reported. Meanwhile, medical media company MJH Life Sciences widened pricing roughly 100 bps after its $430 million loan backing an acquisition struggled to close.

Elsewhere, a $1.5 billion loan financing Thoma Bravo’s acquisition of Verint Systems, which will be combined with Calabrio, was amended after its premarketing period, Octus reported, and still has yet to price after sweetening terms with a notable discount this week.

Average high-yield bond spreads for CCC, BB and B rated credits continue to trend tighter in recent months as well, reflecting investor caution about riskier rated credit, according to data from ICE BofA U.S. High-Yield Index.

M&A and LBO Momentum

After expectations at the beginning of 2025 for a strong year of leveraged buyout and M&A activity were stifled by tariff-induced market volatility in the spring, the primary market is beginning to see the flow of new LBO deals that investors were promised.

“We are hearing that capital markets people are busy, but that activity will not come to market immediately,” said Lauren Basmadjian, global head of Liquid Credit at The Carlyle Group.

North American M&A announcements reached $306 billion in September, according to a Bank of America report, with several sizable buyout deals launched in October already.

Although the primary market was significantly dominated by refinancings and repricings through the end of summer, a handful of recent sizable LBO deals have propped up new-money activity in the market.

Most notably is Electronic Arts’ $55 billion take-private by PIF, Silver Lake and Affinity Partners. The transaction, said to be the largest leveraged buyout in history, includes $18 billion in syndicated leveraged loans and high-yield bonds led by JPMorgan, which are expected to be assigned single-B ratings.

In addition, Blackstone and TPG are premarketing a cross-border $12.5 billion loan package to acquire healthcare business Hologic, while Carlyle also lined up a cross-border debt package with a group of nine banks to back its €7.7 billion buyout of German chemical company BASF’s coatings business. Meanwhile, Dayforce’s $5.5 billion loan funding its $12 billion acquisition by Thoma Bravo that successfully launched earlier this month is one of the largest loans backing a buyout this year.

Market participants noted that such sizable deals financing LBO and M&A activity may give way to more primary activity through the end of the year.

“It will be interesting to see if the recent large LBO transactions create momentum in the market,” said Painter.

Tech Boom and AI Fears

The tech industry in particular has been an active sector in the primary market recently, dominating recently announced LBO deals. Market participants have flagged, however, that although the tech and software sectors have driven activity, concerns around AI have also hindered processes on some deals.

Thoma Bravo’s deal backing its acquisition of Verint Systems and Calabrio, for example, has struggled to price this month, with one main reason being buyside wariness of the customer service software company’s vulnerability to AI disruption, investors say.

Getty Images also had difficulty filling books earlier this month for its $628 million high-yield bond to refinance Shutterstock’s debt in connection with its merger. Despite Getty’s offering being an enticing yield, concerns related to AI in the imaging and content creation sector were a significant deterrence, according to investors.

The secondary market has likewise reflected anxieties about AI, as several investors noted that companies in the business services sector, for example, as well as “anything with a whiff of potential AI,” have been trading off preemptively this fall.

Despite these fears, many recent deals in the tech industry successfully launched and priced, including Bitcoin miner and computing company TeraWulf’s $3 billion debt financing package funding its development of data center operations.

AI companies have been entering the primary market recently to refinance previous debt as well, though these deals have also faced scrutiny from investors.

Parking operator and AI technology company Metropolis Technologies struggled to refinance its existing private credit issued debt with a $1.1 billion loan, for example. Final pricing on the deal widened 100 bps and came several days past its commitment deadline.

“Going from private credit to the BSL market is by definition opportunistic,” said Jeremy Burton, a portfolio manager on PineBridge Investments’ leveraged finance team, on private credit deals being refinanced in the public market.

“You first need to convince the sponsor to make the switch, and then you still have to see if it makes sense pricing-wise,” Burton added.

Metropolis is one of several deals that refinanced private debt in the BSL market this fall. Other successful examples include Liquid Tech Solutions, Finastra, Duck Creek and Cooper Machinery Services. Market participants said the trend is in part a result of the significant number of leveraged buyout deals financed with private credit at wide margins over the past few years, with several of them having call periods expiring this fall.

Disqualified Counsel Provisions

Another trend market participants highlighted this fall is an increasing prevalence of “disqualified counsel” provisions appearing in broadly syndicated loan deal documents, which allow one party to prevent another party from choosing a specific law firm as its counsel.

As the provisions signal a new development in the ongoing struggle for control over creditor group formation, leveraged finance professionals have speculated on whether this type of provision language is enforceable and what degree of impact it will have – in both the near term and in future dealmaking.

“In BSL deals, disqualified counsel language is a focus point for sponsors,” said Kris Ring, a partner in Goodwin’s private equity group. ”This language has become more prevalent in newly syndicated deals because there are certain counsels who are known to be problematic and stir up lender-on-lender violence. That’s not productive from a sponsor point of view, so sponsors are taking a stance.”

The new provisions could impact lenders’ negotiating power by allowing borrowers to veto their first-choice legal counsel, as Octus reported. Leveraged finance professionals say the provisions are a preventative measure, as sponsors want to be proactive.

Ring noted, however, that disqualified counsel language has not gotten as much traction in private credit deals, where it has been rejected in most instances.

Among other trends affecting the dealmaking process, cov-lite deals are pushing into smaller middle-market companies, a handful of market participants have noted, saying that the EBITDA threshold has decreased. Others said that the question of whether PIK toggles in senior secured credit facilities count toward leverage has also been a fraught subject between sponsors and lenders.

Heading Into Next Year

Ultimately, leveraged finance participants say they are hopeful about deal flow looking ahead to next year, though they note the market will need to see more macro stability, particularly around tariffs, for the pipeline to fully materialize.

“The market is an interesting environment right now – economic data on the jobs front has been somewhat weak, but spreads are at historically tight levels,” said Burton, who noted that this reflects strong credit metrics and the likelihood of more expansionary monetary policy.

Despite recent signs of fatigue in the market, investors insist the primary window remains open. As 2026 approaches, the coming months will reveal how investors digest – and sustain – the recent rally in new issuance.

“Given rate predictions and pent-up supply, we remain cautiously optimistic about new issuance in 2026,” said Basmadjian.