Banks underwriting corporate borrowings in the U.S. leveraged loan market raised the size of at least six proposed deals by a combined $2.6 billion ahead of investor commitment deadlines Thursday, Bloomberg reported, in the clearest sign yet that demand for risky dollar-denominated debt has heated into a full-blown imbalance — with funds, collateralized loan obligation managers, and private-credit pools chasing more paper than the market is currently producing.
The Thursday upsizes, tracked by Bloomberg, mark a deepening of a trend that has been building for months. Strong inflows into CLO funds and exchange-traded products, combined with stretched cash piles at private-credit shops and reignited buyout activity, have created the most lender-friendly conditions for borrowers since the post-pandemic refinancing wave.
Banks running syndicated processes have been able to widen ticket sizes, tighten pricing, and pull deals forward — a dynamic that has fed back through the secondary market into ever-richer pricing on existing loans.
The numbers tell the story.
Through the first stretch of 2026, $77 billion in U.S. leveraged loans has priced across 54 deals, alongside $22.6 billion in high-yield bond issuance across 20 deals, according to data published by Octus.
Bank of America strategists project full-year 2026 leveraged loan issuance to climb 10% to roughly $470 billion, fueled by a doubling of merger-and-acquisition and leveraged-buyout volume to about $260 billion.
JPMorgan Chase analysts have separately estimated that M&A and LBO debt issuance could reach $80 billion in high-yield bonds and $225 billion in loans this year.
The pipeline backing those forecasts is already visible.
The roughly $55 billion take-private of Electronic Arts by Silver Lake is expected to bring $20 billion of debt to the syndicated loan market in the months ahead, led by JPMorgan.
Blackstone and TPG’s $18.3 billion buyout of medical-diagnostics company Hologic will require another $12 billion of debt.
Air Lease is being taken private in a $28 billion deal, and Bloomberg has calculated that banks have already underwritten roughly $65 billion of leveraged-buyout debt scheduled to come to market in 2026.
Borrowers, in many cases, are pricing those packages at the tightest spreads in years.
The pricing reflects the supply-demand mismatch.
The average institutional loan margin in the third quarter of 2025 was just 3.13%, the lowest quarterly average on record, according to Debtwire data.
Average bids in the secondary market are running at 95 to 97 cents on the dollar.
Roughly 40% of outstanding institutional loans are trading at or above par, leaving managers of CLOs — the dominant institutional buyer of leveraged loans — scrambling for newly priced paper at any kind of yield premium.
CLO issuance in the U.S. reached a record $472 billion of broadly syndicated CLO volume in 2025 across more than 1,000 transactions, plus another $84.7 billion in private-credit CLOs, per Octus.
“This year is really the perfect storm for credit because we have a fiscal expansion and simultaneously also have monetary easing,” Neha Khoda, head of U.S. credit strategy at Bank of America, said at a recent industry roundtable. “Historically, whenever we’ve seen these happen concurrently, it’s been good for credit.”
Michael Marzouk, a loan portfolio manager at Aristotle Pacific Capital, told industry attendees that corporate fundamentals “remain in good shape” and that easing should help spur further M&A activity off trough levels.
Adam Abbas, head of fixed income at Oakmark, said he expects buy-side investors to migrate from high-yield bonds into leveraged loans as the asset class normalizes.
The risks, however, are creeping back into view.
Loans priced below 90 cents on the dollar climbed to 9.4% of the market in November, matching a mid-year peak.
The September 2025 blowups of Tricolor and First Brands have left what one Deutsche Bank analyst, Jamie Flannick, described as “a fog hanging over” the leveraged finance market.
Covenant-lite loan issuance is rising, which reduces lender protections and historically lowers recoveries in defaults.
Moody’s forecasts speculative-grade defaults to decline to 3.0% in the U.S. and 2.4% in Europe by October 2026 — down from 5.3% and 3.8% a year earlier — but warns that tariff shifts, inflation and geopolitical tensions could disrupt the base case.
With the Strait of Hormuz still closed and second-quarter inflation now forecast at 6% by the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters, the macro backdrop is far from clean.
The other complication is CLO profit math.
Spreads on the underlying loan paper have compressed so much that Morgan Stanley strategists recently estimated CLO equity arbitrage is at its slimmest level in about a year.
Tom Majewski, founder of Eagle Point Credit, captured the trade-off at the Opal Group’s annual industry conference in Dana Point, California: “Picture a wall of sand coming at you from one side and you’re trying to move boulders on the other.”
Strategists at Citigroup, led by Michael Anderson and Steph Choe, have noted that the AI capital-expenditure cycle — which is on track to draw an estimated $150 billion from leveraged finance markets over the next five years for data centers — is itself “a mixed bag for credit,” boosting corporate animal spirits while threatening incumbent business models.
For now, the imbalance is producing more — and bigger — deals.
Until either the Federal Reserve signals a clearer pause, the AI-driven capex cycle slows, or a fresh credit event tightens risk appetite, borrowers and bankers appear set to keep pushing the limits of what investors will absorb.
JBizNews Desk
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