Private credit spreads are expected to tighten and covenant protections to loosen as demand for credit investments continues to outpace supply, according to the results of PitchBook LCD’s Q4 Global Private Credit Survey. This inaugural survey was conducted Nov. 9-20, and respondents included a mix of credit providers, banks, private equity shops, advisory firms and other market participants from the US and Europe.
Full results of the survey, including remarks from a “comments” section that help to shed light on the nuances of the market, are detailed below.
Key points:
- Private credit spreads are expected to tighten
- Covenant protections are expected to loosen
- Deal activity is expected to increase
- Sourcing assets and geopolitical uncertainties could provide headwinds
- Credit conditions for borrowers are improved from a year ago
See also our interactive graphic of the survey results.
New-issue spreads have declined significantly this year amid increasing competition, and further compression is expected. Indeed, the average spread of US LBOs financed by the direct lending market has contracted to 555 bps, down by 115 bps from 2023 and 161 bps from 2022.


Looking beyond just buyouts, the spread for a unitranche loan to a $50 million EBITDA business in a non-cyclical business pricing today was estimated at roughly S+500-549, according to a plurality of respondents. In six months, the share of respondents who see spreads below S+500 increased, and the share of respondents who expect spreads above S+600 declined.


The largest group of survey respondents (roughly 45%) expect covenants to loosen slightly on private credit deals in the core middle market over the next few months. However, the lower middle market appears to be trending differently — here, the largest group of respondents (more than 40%) expect covenants on lower middle market deals to stay the same.


This divergence makes sense — core middle market borrowers could potentially be refinanced in the BSL market as they grow, and more than 90% of the BSL market is currently covenant-lite. The lower middle market does not face the same competitive pressures, and lenders to this space typically expect financial covenants. The smaller deals are riskier, and lenders want protections to finance them.
Nearly half of “plain vanilla” private credit loans in the core middle market (47%) were said to be governed by one financial maintenance covenant, while 36% were thought to feature two financial maintenance covenants, according to LCD’s survey. Some 10% were said to have three or more covenants, while 7% were viewed as having no covenants.

In terms of deal activity, the pace of overall issuance slowed in the second half of the year as the number of buyouts and other types of M&A transactions declined. Meanwhile, refinancings continue to take a more prominent share, accounting for nearly 20% of all deals since July 1, up from 12% in the first half of the year.

However, the survey showed that roughly 57% of respondents expect deal activity to increase “slightly” over the next 90 days and another 17% expect a significant increase. About 11% expect a decrease.

The category expected to feature the “most growth in private credit dealmaking” is expected to be “another area of private credit,” such as asset-based lending, lending to investment-grade entities, or infrastructure lending.

Fifty-seven percent of respondents describe the demand for loans exceeding supply.

Likewise, in response to choices about the biggest headwinds facing market participants in the next six months, “sourcing assets” and “geopolitical uncertainty” were the top two answers.

Overall, compared to one year ago, credit market conditions have improved, according to the largest share of respondents.

The market speaks
Remarks in an optional comment section shed light on further nuances about market conditions and told the story of the credit market from different points of view.
For instance, one survey participant said, “Lenders are still being very picky on client selection. Hopefully, they will start approving more deals as the economy improves.”
The correlation between tightening spreads, loosening covenants and challenges in sourcing investments is expected to govern market dynamics in the near-term.
“Given the limited amount of deal flow and significant amount of dry powder, the private credit market will see significant competition for deals. Consequently, strong borrowers will benefit through lower pricing and looser credit terms until deal flow picks up,” one survey respondent said.
Heavy fundraising in recent years is behind the private credit market’s growth and deep liquidity.
“I see a significant amount of capital pursuing transactions / highly competitive market for solid credits,” one respondent said.
Notably, there are other ways the core middle market is diverging from the lower middle market.
“Expect spread compression to plateau as a result of [an] increase in LBO activity and reversion of larger players focusing on core middle market after having been opportunistically more active in [the lower middle market],” another respondent said.
Adding to concerns for market participants are potential changes from the next Trump administration.
“Higher inflation will dramatically affect markets if tariffs [are] imposed and deportations are significant in terms of numbers. Labor will be in short supply [which will force] up wages for existing available workers,” one respondent said.
Featured image: Mutlu Kurtbas/Getty Images
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