Private Credit’s Pricing Power Fades as Banks Regain Ground

Private credit no longer holds the upper hand it once did. Borrowers are turning back to traditional banks. And the numbers tell a clear story of shifting power in leveraged finance.

Last year Catalent secured a $4.2 billion term loan from direct lenders to support its acquisition by Novo Holdings. The drug manufacturer then refinanced last month with a $4.1 billion syndicated loan. That single move trims its annual interest expense by roughly $100 million. Such examples have multiplied. They signal a broader change now underway.

Redemptions from retail investors have eroded the advantage private credit once enjoyed on pricing. Banks have seized the opening. A new report from DC Advisory lays out the dynamic in detail. PitchBook covered the findings closely on September 10, 2026.

Pressure on the largest direct lenders continues. Ares, Apollo and KKR all operate business development companies aimed at individual investors. Those vehicles face ongoing redemption demands. Investors in Cliffwater’s direct lending interval fund sought to redeem 16% of shares in the third quarter. That figure came down only slightly from 17% the quarter before. Blackstone’s BCRED saw requests hold steady at 10%.

BlackRock’s flagship HPS Corporate Lending Fund recorded withdrawal requests of 11.5% in the third quarter. The prior quarter stood at 13.3%. The firm will repurchase the customary 5% threshold, about $600 million. Reuters reported the easing on September 11, 2026. Similar moderation appeared in other BlackRock vehicles. Yet the backlog from earlier quarters lingers across the industry.

New-issue spreads in private credit have moved higher. They averaged 502 basis points over the three months ended August 31. That compares with 475 basis points in the first quarter. Deals priced in the 500-549 basis point range now represent 52% of sponsor-backed direct lending transactions. The share stood at just 25% earlier in the year. Borrowers pay more. Banks look more attractive by comparison.

Defaults add another layer of strain. Fitch Ratings recorded a U.S. private credit default rate of 6.1% for the 12 months through July. The figure marks a record high. Oil prices climbing back above $100 a barrel create fresh headwinds for leveraged borrowers already carrying high debt loads. Input costs rise. Inflation risks mount. Floating-rate loans tied to SOFR become costlier if the Federal Reserve delivers another rate increase. Markets price in nearly a 70% chance of such a move at the September meeting. CNBC examined the oil shock’s impact on September 11, 2026.

Treasury yields have climbed in recent weeks. The selloff in government bonds raises fresh questions about risk and reward in direct lending. Direct lending bets suddenly appear less appealing. Bloomberg captured the tension in its September 11 newsletter.

Yet not all pressure falls evenly. Credit dispersion has widened. Stronger borrowers still access capital on reasonable terms. Weaker names, particularly in software and certain 2021-2022 vintages, face restructuring and liability management. Markdowns have accelerated at some business development companies. Forty-four U.S. BDCs showed fair value of $92.88 billion against $95.19 billion in cost at mid-year. Most of the damage concentrated in a handful of names.

Payment-in-kind arrangements have risen. Non-accruals have ticked higher. Portfolio concentration in certain sectors amplifies the risk. PwC’s 2026 private credit survey found that 67% of portfolio managers point to greater competition as the top factor hitting performance this year. Defaults and credit losses follow closely at 64%. Ninety-three percent expect flat or lower returns. The survey, released in May, already anticipated the test now unfolding.

Private credit assets sit between $1.5 trillion and $2 trillion globally. Growth projections once called for $3.4 trillion by 2030. That outlook has grown more cautious. Banks have reentered parts of the market. Syndicated loans have won refinancing mandates that once went to direct lenders. FDH Aero, an aerospace supply chain business, secured $1.1 billion in syndicated debt last month after earlier private credit financing. Few private credit deals have been refinanced into the syndicated market in recent months. The flow runs mostly one way.

Valuation concerns linger. Publicly traded BDCs trade at discounts to net asset value. Median discounts reached levels around 15% to 27% in recent months. Investors question whether reported marks on illiquid loans fully reflect underlying stress. Software sector weakness, partly tied to artificial intelligence disruption, has driven many of the markdowns. Public software equities dropped sharply earlier in the year. Loan values followed.

Managers have responded by sharpening focus on investment selection, governance and downside protection. Top-quartile performers with strong underwriting and workout expertise stand to pull further ahead. Weaker platforms may face redemptions and consolidation. The current cycle tests structures built during years of easy capital and compressed spreads.

Still, structural demand for private credit remains. Many middle-market companies lack ready access to public debt markets. Banks continue to pull back from certain riskier lending. Senior secured loans with tighter covenants in newer vintages offer better protection than deals struck in 2020 and 2021. Opportunities in distressed and opportunistic credit have begun to surface for managers equipped to handle restructurings.

The redemption pressures that weighed on non-traded BDCs appear to be moderating in some cases. Evercore analyst Glenn Schorr noted the clearing backlog as an encouraging sign for sentiment in the wealth channel. Blackstone, Blue Owl and others have gated or limited repurchases to manage liquidity. The process has been orderly so far. No major forced selling has materialized.

But the combination of higher rates, commodity shocks and sector-specific weakness has exposed vulnerabilities. Inflation, more than rates themselves, poses the bigger threat according to some market participants. A rate hike driven by persistent price pressures would compound the burden on highly leveraged companies staring at a refinancing wall.

Private credit’s rapid expansion over the past decade delivered strong returns in a benign environment. That environment has changed. Competition has intensified. Pricing power has diminished. Credit losses are no longer theoretical. The asset class now faces its first true test as a mature part of institutional portfolios.

How managers navigate this period will determine the gap between winners and also-rans. Those who underwrote conservatively, maintained strong documentation and built restructuring capabilities should fare better. Others may see performance suffer and capital outflows accelerate. Dispersion, already evident in the data, looks set to widen further.

The Catalent refinancing stands as more than an isolated transaction. It reflects a market finding balance again between private capital and bank syndication. Private credit will retain a significant role. Its edge, however, has narrowed. Banks have reminded the industry they still compete effectively when conditions shift. The months ahead will reveal which managers adapt and which stumble.