The Spread Squeeze: Priced for Perfection
The Broadly Syndicated Loan (BSL) market is currently defined by a sharp disconnect between pricing and activity. While liquidity is abundant, it is chasing a limited pool of assets. Driven by fierce competition among banks to deploy capital, credit spreads have compressed to levels not seen since the Global Financial Crisis. Borrowers rated B-minus are now commanding spreads as tight as S+366 basis points, while B-flat issuers are seeing pricing near S+317. This aggressive tightening suggests a market pricing in a “soft landing” with near-perfect execution.
However, the bulk of this volume is not funding growth. Approximately 82% of Q3 volume was driven by refinancings, repricings, and liability management exercises (LMEs). Public market investors are effectively trading the same paper back and forth at lower yields, rather than financing new enterprise value. For corporate treasurers, the window to lower interest costs is wide open, but for investors seeking yield, the public market is offering increasingly thin compensation for risk.
Regulatory Headwinds Stall M&A Financing
Despite the cheap cost of senior debt, the expected resurgence in Mergers & Acquisitions (M&A) has been stifled by macro-political friction. While there is optimism for a 2026 pipeline, current deal flow is being throttled by regulatory uncertainty, including the lingering threat of tariffs and ongoing antitrust scrutiny from the FTC and DOJ. Mega-mergers are facing prolonged closing timelines and “second request” reviews, causing private equity sponsors to hesitate on pulling the trigger for new Large-Cap Leveraged Buyouts (LBOs).
Furthermore, investor selectivity is rising. We are observing a “bifurcation of trust” where standard credits clear easily, but complex stories—particularly those exposed to AI disruption risks or regulatory hurdles—are being pulled from syndication (e.g., Mallinckrodt, Nouryon). The public market is open, but it is fickle.
The Private Credit Advantage: Certainty in Volatility
This environment highlights the structural distinct advantage of private capital. While banks are aggressively loosening terms to win easy refinancings, they remain rigid on process and regulatory compliance for complex new money deals.
What this means for borrowers: If your transaction fits a standard “cookie-cutter” profile, the bank market is currently your cheapest option. However, if your deal involves complex acquisition structures, tight closing timelines, or requires certainty amidst regulatory noise, the public market carries significant execution risk. Bond Capital maintains discipline by focusing on the middle market, where deal certainty is paramount. We provide the flexible junior capital that completes the stack when banks hit their leverage limits or when regulatory delays threaten to derail a timeline. While public markets price for perfection, we price for reality and execution.
