Private Credit Firms Face Capital Glut as Lending Activity Plummets

The drop in lending volume to $33.59 billion from $74.67 billion in the first quarter marks the lowest level since mid-2023. Deal counts followed a similar downward trajectory, falling to 154 transactions. This retreat is most evident in private equity-backed financing, where buyout-related volume plummeted by more than half to $9.79 billion.

Industry experts attribute the slowdown to a combination of sluggish M&A activity and heightened caution. Jun Li, EY’s global and Americas wealth and asset management leader, noted that managers are prioritizing underwriting quality over deployment speed. Borrowers are facing stiffer competition from the broadly syndicated loan market, while private credit firms remain wary of potential defaults. Many lenders are currently hoarding capital to support existing portfolio companies that are struggling to service debt taken on during the lower-rate environment of 2021 and 2022.

Financial constraints are further tightening for some business development companies. B. Riley Financial chairman Bryant Riley noted that strain on older credits is forcing firms to reserve cash for troubled borrowers rather than pursuing new deals. With public BDCs trading below net asset value and retail investors increasing redemption pressure, the sector is entering a period of defensive consolidation rather than aggressive expansion.