Key Takeaways
- • U.S. direct-lending volume fell about 55% quarter-on-quarter to $33.59 billion in the second quarter of 2026 from $74.67 billion in the first, the lowest level since the second quarter of 2023, according to PitchBook/LCD data.
- • The number of direct-lending deals fell to 154 from 217 in the prior quarter.
- • North America-focused closed-end direct-lending funds raised $16.25 billion in the second quarter, up from $1.3 billion in the first quarter and the highest level in two years, per Preqin data.
- • PE-backed direct-lending volume dropped to $19.40 billion from $44.61 billion, while LBO-related volume fell to $9.79 billion from $22.31 billion.
- • Lenders are becoming more selective amid defaults, software-exposure concerns, legacy 2021-2022 loan stress, and redemption pressure in semi-liquid vehicles.
Summary
Direct lending by U.S. private credit firms fell sharply in the second quarter of 2026 even as fundraising for the asset class rebounded, according to Reuters. The divergence highlights a gap between the capital being raised for private credit and the deal flow available to deploy it. North America-focused closed-end direct-lending funds raised $16.25 billion in the quarter, up from $1.3 billion in the first quarter, per Preqin data. Lending volumes moved in the opposite direction: PitchBook/LCD data showed U.S. direct-lending volume fell about 55% to $33.59 billion from $74.67 billion, with the deal count declining to 154 from 217.
The pullback was sharpest in private equity-backed lending, a key source of direct-lending demand. PE-backed direct-lending volume fell to $19.40 billion from $44.61 billion, and LBO-related volume dropped to $9.79 billion from $22.31 billion. Jun Li, EY's global and Americas wealth and asset management leader, attributed the slowdown to softer M&A and buyout activity, borrower delays, competition from the broadly syndicated loan market, and greater selectivity among private credit managers.
Reuters reported that lenders are also contending with caution stemming from loans made during the 2021-2022 boom, when borrowers took on debt at lower rates and looser terms. Higher rates have made those loans harder to service, pushing lenders to demand better pricing and stronger protections on new deals. Bryant Riley, chairman and chief executive of B.Riley Financial, said older credits are showing strain, leading some business development companies to hold cash for troubled borrowers rather than new loans.
Funding constraints are also weighing on activity. Private BDCs have faced redemption requests, while many public BDCs trade below net asset value, limiting their ability to raise fresh equity. Li said investors are likely to place greater value on underwriting quality and risk-adjusted returns over the long term than on deployment speed alone.
The pullback was sharpest in private equity-backed lending, a key source of direct-lending demand. PE-backed direct-lending volume fell to $19.40 billion from $44.61 billion, and LBO-related volume dropped to $9.79 billion from $22.31 billion. Jun Li, EY's global and Americas wealth and asset management leader, attributed the slowdown to softer M&A and buyout activity, borrower delays, competition from the broadly syndicated loan market, and greater selectivity among private credit managers.
Reuters reported that lenders are also contending with caution stemming from loans made during the 2021-2022 boom, when borrowers took on debt at lower rates and looser terms. Higher rates have made those loans harder to service, pushing lenders to demand better pricing and stronger protections on new deals. Bryant Riley, chairman and chief executive of B.Riley Financial, said older credits are showing strain, leading some business development companies to hold cash for troubled borrowers rather than new loans.
Funding constraints are also weighing on activity. Private BDCs have faced redemption requests, while many public BDCs trade below net asset value, limiting their ability to raise fresh equity. Li said investors are likely to place greater value on underwriting quality and risk-adjusted returns over the long term than on deployment speed alone.
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