Spreads Tighten to Post-Crisis Lows
The leveraged loan market is currently defined by a stark contradiction: credit spreads have collapsed to their tightest levels since the Global Financial Crisis, yet net new deal activity remains muted. Data from the third quarter of 2025 indicates that spreads for B-minus rated issuers have compressed to S+366 basis points, a level not seen in over a decade. Driven by a technical imbalance—where investor demand for floating-rate assets far outstrips the supply of new paper—banks and institutional lenders are aggressively cutting pricing to win mandates.
For borrowers, this is a "Risk-On" pricing environment. According to [portagepointpartners.com](https://portagepointpartners.com/company-news/insights/2025-q3-credit-market-update/), opportunistic repricings and refinancings accounted for roughly 82% of institutional volume. Corporate treasurers are seizing this window to slash interest costs and push out maturity walls to 2028 and beyond. However, as noted by [mondaq.com](https://www.mondaq.com/unitedstates/financial-services/1698560/leveraged-finance-market-update), this surge in liquidity has not yet catalyzed a broad return of M&A.
The M&A Gap: Policy & AI Jitters
Despite the attractive cost of capital, genuine M&A and Leveraged Buyout (LBO) activity remains sluggish. Dealmakers cite a confluence of headwinds, including lingering tariff uncertainties and vague policy shifts that have kept sellers on the sidelines. While the cost of debt is low, the certainty of execution in the public markets remains volatile.
Furthermore, a new structural risk has entered the underwriting committee: Artificial Intelligence. As reported by [octus.com](https://octus.com/resources/articles/leveraged-finance-market-participants-cautiously-optimistic/), specific deals for companies in the software and imaging sectors faced syndication headwinds due to lender fears regarding AI disruption and technological obsolescence. This selectivity suggests that while money is cheap, it is becoming increasingly discerning regarding business model durability.
The Implication: Cheap vs. Flexible Capital
In this environment of razor-thin margins, public market lenders are priced for perfection. To maintain these tight spreads, senior lenders often require rigid covenants or strict leverage caps that can stifle a company’s agility during a growth phase or complex acquisition.
This highlights the strategic necessity of private credit. While senior bank debt offers the lowest headline rate, it is often the most restrictive. Bond Capital emphasizes that structural flexibility is as valuable as pricing. As banks compete aggressively on thin margins, we provide the patient, junior capital that completes the financing stack—offering borrowers the certainty needed to close transactions that public markets may be too slow or too rigid to accommodate.
