The Public Market Paradox: Record Cheap Debt, Record Low Deal Flow
The leveraged loan market has entered a paradoxical state of aggressive pricing amidst paralyzed deal flow. As of Q3 2025, credit spreads in the Broadly Syndicated Loan (BSL) market have compressed to levels not seen since the post-Global Financial Crisis era. With banks desperate to deploy capital, margins on B-minus rated issuers have tightened to S+366 basis points, while B-flat issuers are commanding S+317. On paper, debt has rarely been this cheap. Yet, looking beyond the pricing screen reveals a market largely closed to transformative M&A.
According to recent market data, nearly 82% of institutional loan volume in Q3 resulted from repricing, refinancing, or extensions. Net new money supply remains scarce. Why isn’t this cheap capital fueling an M&A boom? The answer lies in a thickening wall of regulatory scrutiny and antitrust headwinds that have left mega-cap borrowers sidelined.
The Regulatory Brake on M&A
While banks are open for business, Washington is not. High-profile antitrust interventions continue to chill the pipeline for large corporate mergers. The Federal Trade Commission’s (FTC) ongoing scrutiny of consolidations—exemplified by the headwinds facing the Omnicom-Interpublic merger—has forced corporate boards into a defensive posture. Deal timelines have stretched from months to years as regulators probe market concentration and, increasingly, political implications of corporate governance.
This regulatory friction dampens the utility of the BSL market. Cheap senior debt carries little value if the underlying transaction cannot pass regulatory review. While there are outliers—such as the massive $55 billion LBO of Electronic Arts—these remain exceptions rather than the rule. The broader trend sees strategic acquirers postponing campaigns until the regulatory fog, compounded by lingering tariff uncertainties from earlier this year, finally lifts.
Banks Race to the Bottom on Price
In the absence of new M&A jumbo deals, banks are cannibalizing their own books to maintain volume. The “repricing wave” is in full effect, with lenders agreeing to slash margins on existing loans just to keep the assets. For borrowers, this is a distinct opportunity to reduce interest expense: data shows that riskier, B-minus rated issuers have seen spreads tighten by 58 basis points year-over-year.
However, this race to the bottom on pricing often comes with rigid structural trade-offs. To secure these tight spreads, public market borrowers must navigate standardized documentation and inflexible covenants that rarely account for the nuance of middle-market operations. Furthermore, the syndication process remains vulnerable to sudden volatility shocks, as seen during the “Liberation Day” tariff scare earlier this year which temporarily froze issuances.
The Implication: Certainty Over Spread
For the sophisticated borrower, the headline spread is only one variable in the cost of capital equation. The BSL market currently offers low rates but high execution risk. Regulatory approvals are stalling closings, and the syndication machine requires perfect market conditions to clear.
This environment validates the Bond Capital thesis: certainty of execution often outweighs the marginal cost of debt. While banks aggressively loosen terms to win volume in the public markets, they cannot solve the regulatory timeline. In the private middle market, where antitrust scrutiny is less intrusive and deal logic is driven by fundamentals rather than political optics, transaction velocity remains robust. We continue to favor bespoke junior capital structures that provide borrowers with the flexibility to execute growth strategies immediately, rather than waiting for disjointed public markets to clear regulatory hurdles.
