UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
Latham & Watkins 99 Bishopsgate London, EC2M 3XF United Kingdom
Tel: +44 20 7710 1000 Fax: +44 20 7374 4460 Email: pr@lw.com Web: www.lw.com
1. Private Credit Overview 1.1 Private Credit Market Continued Growth
1.2 Interaction With Public Markets Private credit lenders maintained their competitive edge in the upper mid-market by reducing margins and accommodating higher leverage levels, retain - ing roles in many prominent deals. This adaptability is further evidenced by their ability to offer financing solutions across the capital structure, including junior and hybrid capital instruments, effectively addressing borrowers’ needs in the face of rising capital costs and liquidity demands. Private credit lenders have also leveraged their com - petitive advantage in transactions involving large sterling tranches, which are more challenging in the syndicated loan market due to their relative illiquidity. However, the resurgence of the syndicated loan mar - ket has led some private credit lenders to refocus on mid-market strategies, where they continue to provide value and maintain market presence. In the lower mid-market, ongoing bank disintermedia - tion is driving a notable trend of collaboration between banks and asset managers. This collaboration allows for innovative financing solutions and the sharing of expertise, benefiting borrowers seeking more tailored and flexible funding options. While there have been certain refinancings of private credit debt with public debt market products, private credit transactions have remained prevalent – espe - cially where there are sterling tranches or bespoke transaction structures. 1.3 Acquisition Finance Despite the reopening of the syndicated market, pri - vate credit has been actively used for headline acqui -
In 2025, private credit continued to represent a key sector of the UK leveraged finance market, especially in sponsor-backed leveraged finance and sectors that are underserved by banks. Private credit funds are now regularly involved in large-cap transactions due to continuing demand for flexible financing and sponsors’ need for alternative capital sources given the tightening of the syndicated market and greater geopolitical risk. Dual-Track Dual-track processes, which explore both syndicat - ed and direct lending, are becoming common in the large-cap space and, increasingly, the mid-market. This strategy creates competitive tension between banks and private credit funds, with sponsors ben - efiting from greater flexibility and better pricing. Sector Focus Private credit is active across various sectors, particu - larly in technology, industrials, consumer goods and financial services. Path Ahead Looking ahead, market participants are expected to innovate in capital structure management and risk strategies. Despite the syndicated markets having a strong 2025, private credit lenders have been focus - ing on opportunities where sponsors require a more bespoke structure or deeper leverage. With M&A activity on the rise, 2026 is expected to be a strong year for private credit.
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