High-yield bond & leveraged loan maturity could create private credit opportunities

Maturing high-yield bonds and leveraged loans over the next few years could create new opportunities for private credit managers.

According to McKinsey’s latest Global Private Markets Report, private debt is expected to continue expanding amid uncertain market conditions, and “new opportunities are emerging for managers”.

“More than $620bn (£462bn) in high-yield bonds and leveraged loans, for example, are set to approach maturity in 2026 to 2027, which could create refinancing opportunities and spur greater demand for private credit solutions,” the report said.

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It added that private debt is currently going through a “period of evolution”.

For many years, growth in the asset class – particularly in the direct lending strategy – was driven by banks’ retreat from leveraged lending, but banks are now showing more willingness to take on risk, McKinsey said.

“Average spreads in direct lending, the largest private debt substrategy, compressed by approximately 120 basis points to settle at about 550 basis points over base rate.

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“While direct lending continued to lead new-issue LBO financing in terms of deal value and count, its share of global private debt deal value declined year over year.”

However, amid these shifts, investor interest in private debt remains strong.

“In uncertain market conditions, the security derived from debt’s privileged position in the capital structure has appealed to institutional investors, as well as retail and insurance capital pools that continued to flow into private debt strategies in 2024,” McKinsey said.

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“Further, investors expect the private credit ecosystem to continue expanding as more asset classes transition to non-bank lenders.”