Despite challenging market conditions in 2025, punctuated by tariff disruption and geopolitical upheaval, leveraged loan markets closed the year on a bright note, with activity in the US and Europe reaching record highs.
US leveraged loan issuance climbed to US$1.89 trillion, nudging ahead of the US$1.86 trillion of issuance posted in 2024, the previous annual high. Although issuance was uneven through the year—with the market hamstrung in the second quarter as issuers and investors paused to digest White House tariff announcements—a stronger second half was enough to push issuance to record levels.
European leveraged loan markets also saw annual issuance reach a record high, of US$398.79 billion, up almost 20 percent on 2024’s output of US$332.66 billion.
In contrast, loan activity in APAC (excl. Japan) was more muted. Overall issuance of leveraged and non-leveraged loans reached US$329.98 billion, down marginally from 2024’s total of US$337.61 billion.
New money deals boost US market
A jump in new money issuance was a key contributor to buoyant US leveraged loan activity. General corporate issuance totaled US$166.01 billion, up by almost two-thirds year-on-year. Issuance for M&A (excl. buyouts) nearly doubled from US$91.26 billion in 2024 to US$178.97 billion. Proceeds for buyouts likewise showed annual gains, with issuance increasing by 21.3 percent year-on-year.
Three interest rate cuts in 2025, huge investment in AI and digital infrastructure and resurgent US private equity activity all contributed to the robust levels of new money activity. Rising M&A volume was a key driver, boosting appetite for deal financing and providing a much-welcome injection of new transaction flow to a market dominated in recent years by refinancing activity.
Narrowing margins also buoyed US activity, encouraging issuers to come to market and take advantage of some of the most supportive financing conditions since 2022. The average margins on single-B rated institutional loans came in at 3.25 percent in Q4 2025, according to Debtwire, a world away from the 5.39 percent average for Q3 2022. Margins for double-B rated loans averaged just 2.56 percent in Q4 2025, having only ever been tighter in late 2019.
As 2026 gets underway, a rally in M&A markets, coupled with lower margins and interest rates, should provide a supportive environment for deal-related financing. However, rising geopolitical tensions are casting a long shadow over markets. The escalating Iran conflict and disruption in the Strait of Hormuz have created significant oil price volatility, stoking inflationary risks. Even if tensions were to ease in the near term, the ripple effects across energy markets and investor sentiment are likely to linger for some time.
Deal financing back on the radar for European markets
The drivers behind record European leveraged loan activity were more mixed than in the US. Refinancing remained the single biggest contributor to overall activity, increasing by 16.6 percent year-on-year to US$188.98 billion and accounting for nearly half of overall issuance.
New money issuance did see growth in some channels, with proceeds for general corporate purposes posting gains from US$11.4 billion in 2024 to US$14.8 billion in 2025. Buyout financing, however, was practically flat year-on-year at US$32.9 billion, while other M&A financing more than halved over the same period to US$15.4 billion.
However, there are signs that more consistent European buyout and M&A-related financing activity will increase through the first half of 2026. Reports suggest lenders are working on financing packages for the potential €3 billion sale of Italian confectionary company Irca, a €4.5 billion financing deal to back the buyout of Polish postal locker business InPost, and a deal involving fund services company IQ-EQ, according to Bloomberg.
Private equity and strategic dealmakers that do choose to finance deals should be able to do so at attractive prices. In the fourth quarter of 2025, margins on European first lien institutional loans averaged 3.75 percent, according to Debtwire, more than 50 basis points lower than the average at the start of 2024. Debtwire reports that margins are now narrower than at any point since 2018.
APAC holds steady
Regarding APAC (excl. Japan) loans, issuance declined marginally year-on-year, with the market adopting a cautious approach to tariff disruption and taking time to review its impact.
US interest rates also took a toll on APAC issuer appetite for dollar-denominated borrowing. Even as US rates began to taper in the second half of 2025, some borrowers preferred to explore local currency funding to avoid exposure to foreign exchange volatility, Bloomberg reports.
Against this cautious backdrop, refinancing was the primary driver of issuance activity, accounting for more than 60 percent of the total. With that being said, issuance for M&A (excl. buyouts) did post a major year-on-year gain, more than doubling from US$10.4 billion to US$21.5 billion.
Mega deals in the digital infrastructure space, underpinned by AI advances, have supported demand for deal financing. For example, in November 2025, KKR and Singapore Telecommunications sought a US$3.8 billion loan to back the acquisition of data center company ST Telemedia Global Data Centres.
Flat issuance figures in APAC loan markets are not all bad news—in fact, they could benefit some borrowers in 2026. Local banks and private credit lenders have access to liquidity and are seeking opportunities to put capital to work. Demand for high quality borrowers has increased competition among lenders, leading to tighter margins and attractive terms for those borrowers.
Such is the depth of liquidity in Asian markets that some European borrowers, such as Dutch building company CTV and French car leasing business Ayvens, as well as borrowers from the Middle East, have raised financing from APAC lenders, according to Bloomberg. This cross-border interest is a welcome addition to a market that will be looking to build momentum after a quiet 2025.
Overall, leveraged loan markets showed notable resilience last year, closing at record issuance levels despite a volatile backdrop. With ample liquidity, supportive pricing conditions and a growing pipeline of deal activity, underlying conditions appear favorable for sustained momentum in early 2026, though mounting geopolitical tensions may test market confidence.