Private credit managers are increasing leverage ratios and offering more flexible structures to win mandates from private equity sponsors, as competition with the resurgent broadly syndicated loan (BSL) market heats up, according to a report by Bloomberg.
Direct lenders are now commonly offering leverage in excess of six times EBITDA — and in some sectors like software and business services, leverage is pushing past eight times — to secure financing opportunities, particularly for sponsor-backed deals. According to sources cited by Bloomberg, several recent transactions have featured leverage stacks nearing pre-GFC levels, albeit with lower loan-to-value ratios.
With pricing pressure limiting lenders’ ability to compete on spread alone, leverage has become a key differentiator. Some firms are also loosening terms by underwriting on adjusted earnings, offering delayed draw term loans (DDTLs), or including payment-in-kind (PIK) features to improve borrower appeal.
A marquee example is Thoma Bravo’s portfolio company Flexera Software, which is seeking $3bn in debt financing to fund a dividend recap — with nearly $1bn in incremental debt to its $1.9bn structure. Elsewhere, Apollo and Blackstone recently helped finance Thoma Bravo’s acquisition of Boeing’s Jeppesen unit, backing a $4bn loan that pushed leverage to between 8–10x EBITDA. However, with purchase prices elevated, loan-to-value ratios remain conservative, often around 35%.
Despite the bullish push, risks are rising. According to MSCI, nearly 45% of private debt-financed companies are at risk of breaching leverage covenants – triple the rate seen in buyout vintages from 2010–2019. Higher leverage can strain cash flow, particularly in a muted M&A market where bolt-ons and capex-driven growth are constrained.
Still, lenders appear eager to deploy capital, with large firms like Sixth Street, Carlyle, and Deutsche Bank leading new financings globally.
