KBRA DLD, a division of KBRA Analytics, reports that direct lending activity supporting leveraged buyouts (LBO) has started the year ahead of 2025 levels, although a February slowdown suggests early momentum may be moderating.

Direct lending LBO volume reached $16.3 billion through February 28, exceeding the $13.4 billion recorded during the same period last year. February issuance totaled $6.9 billion, down from $9.4 billion in January and marking the first monthly slowdown of the year.

Much of the early-year activity was underwritten before a series of macro developments introduced heightened volatility into financial markets, including equity market swings tied to artificial intelligence sector repricing, redemption pressure across business development companies (BDC), escalating geopolitical tensions involving Iran, and rising oil prices.

Direct lending has historically benefited from market volatility when syndicated loan markets retrench. However, the current environment may prove more complex, as volatility coincides with tighter BDC liquidity and a more cautious risk appetite. For now, lenders continue to support new acquisitions, including financing tied to the leveraged buyout of software company Nexthink.

Key trends emerged in February:

• Leverage: Average unitranche leverage for LBOs held steady at 5.7x, in line with January and slightly above the trailing 12-month average. Lower middle market leverage moderated toward long-term norms.
• Yields: Direct lending LBO yields declined, bringing the two-month average roughly 100 basis points (bps) below the Q1 2025 average.

Market volatility has also started to influence pricing for larger transactions, where competition between banks and private lenders is most pronounced. As syndicated loans have cleared at wider spreads and discounts, direct lenders have responded by increasing spreads and fees by approximately 50 bps-100 bps.

KBRA DLD is a trusted, independent source of news and research covering direct lending strategies, pricing dynamics, and default risk across the U.S. and Europe. The platform also provides data on private credit defaults based on the KBRA DLD Direct Lending Index, a benchmark launched in 2023 covering more than 2,900 direct lending borrowers.

Visit dld.kbraanalytics.com or reach out to our contacts below for more information on KBRA DLD and its research offerings.

About KBRA DLD

KBRA DLD, founded in 2019 and acquired by KBRA Analytics in 2022, is a leading intelligence platform dedicated exclusively to the direct lending segment of the private credit market. The platform delivers real-time news, proprietary data, and in-depth analysis covering both the U.S. and European markets, providing market participants with high-quality insights into one of the fastest-growing areas of private credit. KBRA DLD also publishes widely followed default indices for direct lending, syndicated loans, and high yield.

Focused on sponsored borrowers, KBRA DLD tracks and analyzes cash flow-based financing structures, including unitranche facilities spanning the lower middle market, traditional middle market, and large-scale financings exceeding $1 billion.

About KBRA Analytics

KBRA Analytics, LLC (KBRA Analytics) is our premier product platform for high-quality data and advanced analytics. Our seasoned teams of industry specialists across each product provide unparalleled insight creating a foundation of deeper analysis and rapid discovery for users. KBRA Analytics is an affiliate of Kroll Bond Rating Agency, LLC (KBRA). KBRA is a full-service credit rating agency registered in the U.S., designated to provide structured finance ratings in Canada, and with credit rating affiliates registered in the EU and UK. KBRA Analytics is a portfolio company of Parthenon Capital.

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