USA Law and Practice Contributed by: Michael Chernick, Sara Coelho, John Chua and Josh Tryon, A&O Shearman
Allen Overy Shearman Sterling US LLP 599 Lexington Avenue New York, NY 10022-6069 United States of America Tel: +1 212 848 4000 Email: mosullivan@aoshearman.com Web: www.aoshearman.com
1. Loan Market Overview 1.1 The Regulatory Environment and Economic Background
1.2 Impact of Global Conflicts Geopolitical risk remains elevated in 2025, driven by ongoing conflicts in the Middle East and persistent trade tensions between the USA and China. Addition- ally, evolving trade policies, particularly in the USA, have impacted the loan market. These factors have contributed to the slow recovery of loan volumes, which persists in 2025, described in 1.1 The Regu- latory Environment and Economic Background , as well as the small M&A volume in North America. The total value of M&A deals in H1 2024 reached approxi- mately USD975 billion, but in H1 2025, M&A volumes dropped by 9% compared to H1 2024, while deal val- ues increased by 15% – ie, fewer deals with higher values. With respect to US loan documentation, the contin- ued uncertainty in the market has led to an ongoing focus on lender-protective provisions (including provi- sions intended to prevent future liability management transactions) which had been scaled back during the years prior to the last couple of years’ downturns. Global conflicts have also increased focus by lend- ers on representations and warranties and covenants relating to compliance with sanctions, anti-corruption Companies raising capital continue to access both the loan and high-yield bond markets, despite increased volatility in the first half of 2025. Most new issuanc- es are for refinancings, with a trend toward shorter maturities and a preference for secured structures. The high-interest rate environment has made fixed- rate debt more attractive, but investors are increasing- ly requiring security in these instruments, as seen by and anti-money laundering laws. 1.3 The High-Yield Market
Following years of heightened leverage levels in the US loan market, and in connection with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act post-2008 global financial crisis, US federal regulators issued Interagency Guidance on Leveraged Lending (the “Guidance”) in 2013. The Guidance imposes certain requirements on regulated lenders and arrangers aimed at promot- ing sound risk management. Among other things, regulated lenders have to incorporate as part of their credit risk analysis a borrower’s ability to deleverage its capital structure during the term of the loan, and to avoid loans that exceed specified leverage levels. Consequently, less heavily regulated non-bank lend- ers and foreign financial institutions capitalised on this opportunity to increase their market share by provid- ing higher leverage and riskier loans. 2024 represented a clear but tempered recovery of the leveraged loan markets, as inflation eased and rates fell modestly amidst a more positive macroeconomic outlook. 2025 began with optimism but quickly faced headwinds from new US protectionist measurements and ongoing geopolitical tensions. Expectations for further monetary easing have moderated as infla- tion risks persist. Technical imbalances remain, with strong investor demand for loans but a limited supply of new issuances, especially for M&A-driven deals.
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