(Bloomberg) — For many US companies, the hot new type of credit seems to be getting less attractive.
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Private credit firms saw their lending volume shrink 14% in the first quarter, even as banks saw an eye-popping 12.7% increase in lending to companies, the fastest growth since 2022. The data, and anecdotal reports from lenders, suggest that some private credit firms are losing business as fears of loan losses have pushed funding costs higher.
At the same time, US banks are benefiting from a wave of deregulation that has allowed them to offer cheaper funding for riskier companies and transactions. The head of the Office of the Comptroller of the Currency said explicitly in January that the agency was trying to relax post-crisis rules for leveraged loans to help banks better compete with private credit.
The data suggest that at least some companies are starting to gravitate back toward borrowing from banks. While private lenders and US banks constantly fight for new business, some industry watchers believe the latest changes are more than just a temporary shift in borrowing preferences.
“It’s a longer-term trend,” said Hans Mikkelsen, US credit strategist at TD Securities. “You had a lot of regulation after the financial crisis that pushed a lot of this business into private credit. Now you’re looking at many years of financial deregulation and that’s going to make it easier for banks to take on some of this risk as well.”
The trend could translate to lower funding costs for companies, because bank loans are often cheaper than private debt.
In March, a typical borrower would pay about 3.75 percentage points above the SOFR benchmark rate to borrow a syndicated loan with banks, versus roughly 4.75 percentage points above the benchmark in the private credit market, JPMorgan analysts said. Bank loans have long been cheaper to get, but can take longer, while private loans can be faster to close.
Banks say they see early signs of a difference in the competitive landscape now. Some private credit funds have less money to lend after investors redeemed more than $15 billion in the first quarter from firms known as non-listed business development companies. New fundraising also dropped 60% from a year earlier, according to the latest data from Robert A. Stanger & Co., which doesn’t account for redemptions.
“Some of the private credit players, obviously, in light of redemptions, are not in the market the way they have been,” said Chris Gorman, chief executive officer of KeyCorp in Cleveland, speaking during the bank’s post-earnings conference call in April. “If you have a bunch of redemption requests, the first thing you do is stop shoveling it out the front door, which I think will give the banks, in some instances, an opportunity to re-intermediate some of those activities.”
It’s not clear how long those redemptions will be a factor. Business development companies have seen their shares rally, and the spreads on their bonds narrow to about 2 percentage points. The risk premiums are close to their levels in February before the war in Iran, down from a peak of around 2.6 percentage points in March, signaling that some investor worry about the companies is fading.
And a multitude of factors may be driving loan growth for banks. The first quarter expansion in banks’ loans to commercial and industrial companies was the fastest since the third quarter of 2022, when the figure was 17.3%, according to Federal Reserve data that is seasonally adjusted and based on estimates from a subset of lenders. While the Fed’s figures are subject to revisions, an increase that dramatic typically reflects real growth.
At least some of the growth could be coming from companies that might have otherwise sought private credit. Direct lending volumes, a form of private credit, totaled about $61 billion in the first quarter, down about $10 billion from the same quarter a year earlier, according to data from JPMorgan and Kroll Bond Rating Agency.
The first quarter figure was down by about $44 billion from the last quarter of 2025, an unusually steep drop. Most public BDCs reporting quarterly results recently disclosed more repayments than new loans, shrinking the size of their portfolios instead of the breakneck growth that had been more typical of the asset class for years.
Investors have been pulling money out of private credit funds because they’ve been worried that the firms will face greater loan losses. Those losses could be fueled in part by the funds’ lending to software companies, which are vulnerable to being disrupted by artificial intelligence.
The shift of these loans back into the banking system may take time to unfold, but it is probably underway and will likely continue happening, said Philipp Carlsson-Szlezak, global chief economist at Boston Consulting Group.
“Private credit has become a little more careful about what loans to extend and maybe the borrowers too are a little more wary of private credit, so they’re being pushed away from private credit back into the banks,” Carlsson-Szlezak said.
Click for a podcast with HarbourVest Partners on the surge in secondary trading of private credit
Week In Review
Companies flooded Europe’s bond market at a record pace on Wednesday, rushing to lock in funding as central banks warn the Iran conflict could reignite inflation and force interest rates higher. In the US, issuance was relatively muted, as investors wait for more detailed information about inflation.
Alphabet sold almost $17 billion of bonds, denominated in euros and Canadian dollars, as the parent of Google taps a growing number of markets to raise the capital it needs to fund artificial intelligence investments.
Apollo Global Management and Blackstone are among private credit lenders involved in talks with chipmaker Broadcom over a roughly $35 billion financing.
Meta is working on a financing package for a data center in El Paso, Texas, that could total roughly $13 billion.
CoreWeave racked up $19 billion of investor orders for a $3.1 billion loan backed by customer contracts for microchips, the first of its kind to be broadly syndicated in the US leveraged loan market.
A group of banks led by JPMorgan is expected to shoulder paper losses of more than $500 million on a debt deal for software firm Qualtrics’ acquisition of Press Ganey Forsta. The $5.3 billion debt deal would be the biggest “hung” transaction in the leveraged finance market this year.
GameStop is relying on a “highly confident letter” — a tactic made famous by corporate raiders of the 1980s — to provide debt financing for its $65 billion bid for eBay.
A debt package for the auto paint and finishing division of European chemicals firm BASF SE drew demand of over three times the deal’s €3.9 billion ($4.6 billion) size, as investor interest in the troubled sector starts to revive after months in the doldrums.
Spirit Aviation Holdings is set to start an orderly wind-down process to sell its assets, capping the downfall of the low-cost carrier that has filed for bankruptcy twice in recent years and failed to clinch a last-minute US government rescue.
Banks are ramping up their use of significant risk transfers to hedge against commercial real estate defaults as economic fallout from conflict in the Middle East piles pressure on the sector.
Two private credit funds managed by Blue Owl bought back $85 million of shares as volatility in technology markets and a selloff in publicly traded loans brought down their value.
A New Mountain Capital private credit fund that sold almost half-a-billion-dollars of assets at a discount earlier this year and used some of the cash to scoop up beaten-down loans says the strategy is already paying off.
Oaktree Capital Management cut the value of one of its private credit funds by almost 4% as the firm marked down its software assets. Meanwhile, BlackRock cut the value of its publicly-traded private credit fund by about 5%. And private equity firm Hg marked down the portfolio value of one of its funds by 9% in the first quarter after software valuations fell to a 20-year low.
Read more: Oaktree Co-CEO Calls Market Pricing ‘Head-Scratcher’ Given Risks
A publicly-traded private credit fund managed by Blackstone said the share of troubled loans in its portfolio jumped in the first quarter after it added another name to its list of borrowers running into repayment strife.
Internet Brands, the KKR-owned company behind WebMD, told lenders it’s considering using some of its cash pile to buy back its loans after the debt sank over AI disruption worries.
On the Move
BlackRock hired former Deutsche Bank executive Saju Georgekutty as head of US investment-grade credit trading. At BlackRock, he will replace veteran trader Mike Kilfeather, who is set to retire.
Restructuring veteran Ari Lefkovits will lead a new advisory firm — Apotheo Capital — that focuses on mergers, restructurings and liability-management exercises, and potentially invests along with clients in some of these deals.
Toronto-Dominion Bank hired Meg Morningstar from Goldman Sachs as a Chicago-based vice president for its credit-trading unit, to help the Canadian lender integrate its electronic high-frequency and institutional trading desks.
SMBC has made several senior hires to bolster its capabilities in securitized finance. Tokyo-based Takashi Tamiya joined from BNP Paribas as a managing director to lead global securitized products syndication to investors in Japan. New York City-based Yoko Hasegawa joined from JPMorgan as an executive director focusing on securitized products distribution in Asia. And Risa Itoshima joined from HPS Investment Partners as an executive director focusing on European CLO structuring.
Emerging markets-focused investment firm Gemcorp Capital Management is turning to Latin America as it expands its private-credit business across developing economies. The asset manager hired Brad McKee from Oaktree Capital Management as senior portfolio manager and head of private credit, based in New York, to oversee loan origination and bring Latin America expertise.
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