Momentum Meets Volatility in the Q1 Leveraged Loan Market

According to the Q1 2025 Pitchbook Credit Markets Quarterly Wrap, the leveraged loan market kicked off 2025 with a record-breaking January, driven by repricing activity. While tariff and regulatory concerns slowed new issuance later in the quarter, Q1 still saw $355 billion in institutional volume—a 7.3% increase over Q1 2024 and the fourth busiest quarter on record. 

Dividend Recaps Remain a Key Liquidity Source for Sponsors 

Sponsors remain active in extracting dividends despite a challenging exit environment. Q1 new-issue volume for dividend recapitalizations reached $24.4 billion, a slight decrease from last year’s first quarter volume of $24.8 billion. 

Middle Market Lending Conditions   

M&A activity for B- rated borrowers (typically middle-market companies) made up just 24% of new-issue volume in Q1, down from a 35% quarterly average in 2024. Tighter underwriting standards from banks and private credit, especially for lower middle market and riskier credits, emerged during the Great Recession and COVID era. The consensus is that credit underwriting conditions will be less severe as long as the economy remains strong with moderate inflation, low unemployment, steady GDP growth, along with a more stable trade policy. These steady economic fundamentals are expected to help ease today’s market volatility and support a more stable lending environment. 

• Liquidity: Record levels of dry powder in private markets, combined with lighter deal flow, are creating intense competition for quality deals. 
• Credit Spreads and Leverage Levels: Credit spreads and leverage remain at historically competitive levels. 

Middle Market Leverage and Pricing ⁽¹⁾ 

(1) Middle market defined as less than $25.0 million EBITDA

Tariff Update 

Volatility is expected to stay high in the near term as markets evaluate the 90-day pause on new reciprocal tariffs for most countries (the Trump administration has increased tariffs on China) and its impact on growth, inflation, and monetary policy. This macroeconomic uncertainty will likely lead lenders to adopt a more cautious approach, reevaluating their underwriting criteria while bracing for a potential recession. If lenders pull back, non-accretive capital uses, like recapitalizations, will be significantly affected. 

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About Our Authors 

Mike Rudolph is a managing director of Sikich Corporate Finance. He has nearly 25 years of experience orchestrating senior debt (cash flow and asset based), junior capital, and equity financings for leverage buyouts, recapitalizations, private placements, and balance sheet restructurings. 

Doug Christensen is a director of Sikich Corporate Finance and provides capital advisory services to his clients. He provides value to private clients through capital structure advisory and capital raises of senior debt (cash flow and asset based), junior capital, and equity financings. 

Source: PitchBook Data, Inc. 
Securities offered through Sikich Corporate Finance LLC, member FINRA and SIPC.