Outlook for Private Credit in 2026

The private credit market has reached a pivotal stage in its growth, with direct lending now matching the broadly syndicated loan market at $1.5-2 trillion in size and forecast to reach $3 trillion by 2028.

Furthermore, private credit has expanded beyond direct lending to include other strategies including asset-backed finance and debt-equity hybrid capital. What began as an alternative to traditional bond and syndicated loan markets for smaller deals or where those markets were not available has evolved into a key segment of global capital markets, reshaping how companies, including large public companies, access financing.

The Broadening Scope of Private Credit

While private credit historically originated as direct lending in senior loan format to middle market, below-investment-grade companies, the market has undergone a transformation in both scope and sophistication.

• Up and down the capital structure: The private credit market now extends beyond senior loans to include junior lending (often with equity upside), mezzanine financing, infrastructure debt, real estate lending and asset-backed finance. For companies, this means access to an expanded menu of financing alternatives, including tailored solutions that traditional bank lenders historically would not provide.
• Companies of all sizes: Private credit serves the full spectrum of companies, from venture-backed growth firms to middle-market enterprises and large-cap corporations, encompassing both private and public entities. This breadth reflects the market’s maturation and the growing recognition among CFOs and treasurers that private credit can offer advantages such as speed, flexibility and confidentiality.
• Across the credit spectrum: Private credit lenders are active across the credit rating spectrum from investment-grade borrowers to leveraged credits and stressed or distressed situations. The emergence of investment-grade private credit, in particular, opens up potential alternatives to the long-standing dominance of public bond markets and commercial bank lending for highly rated issuers.

Private credit is not typically top of mind for investment-grade companies, who enjoy ready access to financing on attractive terms through relationship commercial banks and the investment grade bond market. However, recent private credit deals by Rogers Communications, Intel and Meta, among others, demonstrate the evolution of this market. Private credit won these deals in the digital infrastructure space by providing sophisticated joint-venture financing structures that did not require consolidation of the financing as “debt” from an accounting or credit rating agency perspective. Meta also pursued its private credit financing alongside a large public bond issuance.

The Evolving Role of Banks in Credit Markets

Banks remain critical players in credit markets, operating simultaneously as competitors to private credit firms and as essential providers of liquidity to private credit asset managers through fund finance facilities.

• Banks versus private credit: On the competitive front, banks have demonstrated their continued relevance in large-cap financing. JPMorgan’s recent $20 billion acquisition financing for Electronic Arts exemplifies banks’ enduring capability to underwrite and syndicate jumbo acquisition finance transactions, particularly for large strategic deals involving household-name companies. In these situations, banks retain advantages: balance sheet capacity, established syndication networks, integrated advisory relationships and pricing that can undercut private credit when market conditions permit. Recent easing of bank regulations may further enhance bank appetite to compete head-on with private credit lenders.
• Banks provide private credit: Many major banks have an asset management division to manage and invest third-party funds into private credit. These asset management teams are walled-off from the traditional commercial lending operations, essentially constituting private credit lending teams housed within a bank. Some other major banks that don’t have their own private credit operations have entered into joint ventures with asset managers to team up on originating and investing in private credit opportunities.
• Banks lend to private credit lenders: Banks serve as crucial enablers of the private credit industry through debt finance they provide to the private credit funds themselves in what is referred to as fund financing. Subscription facilities (revolvers to funds backed by limited partner commitments), NAV facilities (Net Asset Value facilities, where existing investments serve as collateral new lending) and other lending structures provide private credit managers with leverage and liquidity, enhancing returns and enabling more aggressive deployment of capital.

Focus on Credit Quality and Diligence

Given recent headline bankruptcies including First Brands and Tricolor, market participants are increasingly focused on credit quality in the private credit market, both in the context of potential defaults as well as reliability of the internal valuations (“marks”) of private credit investments held by large asset managers.

This heightened scrutiny reflects the market’s maturation and the inevitable reality that not all private credit investments will perform as underwritten. As the asset class has grown, so too has the population of borrowers, and with greater volume comes greater dispersion in credit outcomes. High-profile defaults or restructurings, while still relatively rare, have prompted investors and commentators to question whether private credit’s historical performance will prove sustainable. Competition among lenders also can increase the risk for a due diligence or underwriting miss or documentation gap.

In response, it remains to be seen whether private credit lenders will tighten due diligence requirements or apply more conservative underwriting standards. Should companies expect more detailed information requests, stricter covenant packages and potentially higher pricing for credits perceived as carrying execution risk? The market for debt financing remains highly competitive, so borrowers will continue to enjoy negotiating leverage to set terms, particularly in the large-cap segment of the market.

Private Credit Trading

Market participants are making efforts to develop secondary trading in private credit, particularly in the investment-grade segment. While some indicators suggest modest progress—with increased trading activity and the emergence of market-making capabilities—this market remains in its early stages. Significant challenges remain as trading practices are still not fully standardized. Secondary trading poses some fundamental challenges in private credit, as borrowers value the relationship stability and confidentiality that private markets provide relative to public markets. Moreover, private credit lenders may not want to mark their loan portfolios to reflect “market” prices, particularly where the market is not liquid or transparent. In 2026, this nascent secondary market will represent both an opportunity and a challenge for the industry as it matures.

Private Credit in Distressed Situations

Given their broad and flexible lending mandates, private credit lenders are often the lender of choice for rescue financings to stressed and distressed companies. Private credit’s advantages in distressed situations are manifold: speed of execution, certainty of funding, flexibility in structuring, greater risk appetite and willingness to provide capital when traditional lenders retreat.

Liability management exercises (LMEs)—where borrowers use new private credit facilities to refinance or restructure existing obligations—have become particularly prevalent. These transactions often involve complex intercreditor arrangements, creative collateral packages and sophisticated legal structures designed to maximize flexibility for borrowers while protecting new lenders’ positions. In the meantime, this activity has not been without controversy. Existing creditors have increasingly challenged aggressive LMEs as improper, leading to litigation and regulatory scrutiny. [1]

With a few notable exceptions, LMEs have occurred in companies with broadly syndicated capital stacks rather than private credit. Distressed companies that have only private credit debt are less likely to need divisive LMEs or full-blown Chapter 11 processes. The concentrated, often “clubby” lender base that private credit provides can make it easier for distressed companies to settle a consensual process to either obtain more runway (via waivers and extensions) or else hand over the keys to lenders.

The Retail Frontier

We expect to see further development of private credit firms offering products to retail investors, in light of the Trump administration’s Executive Order in August 2025 opening the door to alternative assets in 401(k) plans.[2] This regulatory shift potentially unlocks trillions of dollars in retail capital that has historically been confined to traditional stocks and bonds.

For private credit managers, retail distribution offers a vast new pool of permanent capital, reducing reliance on institutional investors and bank financing and potentially enabling longer-duration lending strategies. For retail investors, access to private credit promises portfolio diversification and potentially enhanced returns, albeit with attendant risk, liquidity constraints and complexity.

Strategic Considerations

As we navigate 2026, the usual caveats about market uncertainty aside, private credit is likely to see another strong year in terms of deal volumes, further penetration of new markets and a source of innovation. What began as “alternative” credit has become a mainstream capital source, rivalling traditional markets in scale and often surpassing them in flexibility. Understanding this landscape is critical to obtaining and navigating a broad menu of financing alternatives. Those who embrace its possibilities and remain clear-eyed about its risks will be best positioned to capitalize on the opportunities ahead.

This article was prepared with contributions from Cleary law clerk, Tianyi Zhao.

[1] For additional information on LMEs, see our liability management transactions article elsewhere in this memorandum.

[2] For additional information, see our 401(k) plan article elsewhere in this memorandum.