The U.S. private credit and middle market sector finished the second quarter of 2026 with noticeably weaker acquisition and direct lending activity, a research report shows. That’s according to PitchBook’s update, although overall deal flow remains light with a handful of large financing It provided key points and issued new warnings, as well as ongoing investor repayment pressures at various non-commercial business development companies (BDCs). portfolio concentration risks.
One of the highlights of the quarter transactions Private club owner and operator Invited Clubs provided more than $1.7 billion in loans to support KSL Capital Partners’ acquisition of the business from Apollo. Ares Credit funds pioneered financing and served as administrative representative.
The company currently carried existing senior private credit debt held by Ares, KKR, HPS, Lord Abbett and MSD Partners, priced at SOFR plus 475 to 500 basis points.
Buyback activity has attracted significant attention in non-traded BDCs.
The Ares Strategic Income Fund received requests to repurchase 14.4% of outstanding shares in the second quarter but only met its quarterly cap of 5%. Almost two-thirds of these requests came from investors who also participated in the tender in the previous quarter, when refunds reached 11.6%.
The demands were heavily concentrated among a small group of non-residents.WE Institutions and family offices represent less than 1% of shareholders but account for nearly half of second-quarter volume.
Antares Strategic Credit Fund (A-STAR) claimed 10.33% of the total shares in the first half of the year and will buy back 7.5%, which is its six-month limit.
Backwards, Goldman Sachs Private Credit Corp. It saw lighter pressure on 3.24% shares, while Nuveen Churchill Private Equity Income Fund reported that around 2.3% shares were tendered – both below their 5% caps.
Ieva Banyte, director of debt capital markets at IQ-EQ, noted that as interest rates fall, a more challenging environment for BDCs emerges.
Net investment income is facing pressure, prompting greater caution regarding dividend policies.
He predicts that defaults will increase in the software industry in the coming years as loans with a maturity of 2022 approach maturity and require refinancing. Banyte also supports many private credit managers. infrastructure It was not originally designed for consistent, detailed portfolio disclosures, which suggests greater transparency could emerge.
New partnerships are being formed to address underserved segments.
Phoenix Merchant Partners and Texas Capital Alternative Asset Management announced a strategic relationship to launch Spurstone Credit, a non-perpetually traded fund focused on senior secured direct investments. lending to core middle market companies with revenues between $100 million and $1 billion.
Elsewhere, BridgeBio Pharma raised $1 billion ($800 million) in preferred equity financing led by Sixth Street, and HealthCare Royalty (a KKR business) contributed $133.9 million.
The instrument has an initial dividend of 7% (in kind or advance) and includes a conversion price that starts at a premium of more than 100% to the last volume-weighted average share price.
Other significant activities included $400 million. credit facility for Aquila Air Capital (structured by ATLAS SP Partners), $350 million of senior secured notes placed in OMERS for Zymeworks, and a $338 million refinancing for Battalion Oil that resulted in a credit spread adjustment that reduced pricing to SOFR plus 650 basis points and extended maturity to December 2029. Market data showed continued moderation in pricing.
The 90-day moving average spread for large corporate loans was at 282 basis points as of July 2, with yields around 6.80%. Average new issue first lien statistics for the previous 30 days reflected an average spread of 289 basis points over 82 years. opportunities.
A separate market feature from Clearwater Analytics now flags subtle concentration risk in life insurance portfolios.
The firm owns 10-20% of insurance companies with limited partner risk. private loan The funds are also exposed to the debt of the underlying funds.
Life insurers significantly increased allocations to private loans, with the average portfolio allocation reaching 9% of total assets (up 110% since 2021). PitchBook update now concluded He noted that this quarter highlights a market in transition marked by selective large financing, repayment management and emerging markets. risk while direct lending volumes and purchasing activity remain limited.
