Private credit executives have long said a deal comeback is right around the corner. That hope for a turnaround was quashed in the second quarter as US tariffs and a prolonged deal drought stymied how much capital a key part of the industry put to work.
Blue Owl Capital Corp. deployed $1.1 billion to new deals in the quarter, a roughly 67% drop compared to a year prior, according to regulatory filings for the business development company. Blackstone Secured Lending Fund deployed 51% less in the second quarter compared to last year. Ares Capital Corp.’s origination volumes dropped 33% year-over-year.
“Liberation Day was the first day of the quarter and brought everything to a screeching halt, both in the lending and the private equity communities,” said Mark Birkett at Configure Partners, referring to April 2, when President Donald Trump announced sweeping tariff measures. “That was far and away the driver of reduced deployments.”
A dearth of deal activity has plagued buyout financing markets for years, but tariff-induced volatility didn’t help deployment. But lenders have their sights set on the latter half of the year, when deals could pick up again, especially if the Federal Reserve decides to cut rates in September.
Private lenders are already swirling around a number of deals, including two for buyouts. Blackstone Inc. and Goldman Sachs Group Inc.’s asset management arm are leading a nearly $1 billion private debt deal to help fund Advent International’s acquisition of Sapiens International Corp. Thoma Bravo has held talks with private credit lenders to raise $600 million of debt to help finance its acquisition of hospitality software company Olo Inc.
“But despite what’s made the second quarter soft, we’re hearing things have picked up since June,” Birkett said. “There are things set to close in the third quarter and there’s optimism that deal activity for the balance of the year will be better.”
BDCs are not the only way private credit firms deploy capital, but they can provide a window into direct lending, given that many funds use this structure to house direct corporate loans.
These vehicles make money by putting money toward loans and collecting interest on that debt. Given an origination boom in 2021, many private loans are coming due. With deployment volume dropping, some funds have been left with smaller margins between how much they’re allocating to new deals and cash coming in from repayments.
“Churn can be a good thing from an earnings perspective so long as deployments outpace repayments,” Birkett said. “A slowdown in deal flow reduces churn and the realization of fees.”
Blackstone Secured Lending Fund reported $431 million in net investments in the second quarter, down from $1.2 billion a year prior, according to filings. Blue Owl Capital Corp. said it committed less to new deals than its borrowers paid off, with payoffs totaling $807 million more than new investments.
In the second quarter, “originations across the Blue Owl platform were in line with recent averages, with a recent uptick in new deal inquiries that we hope will translate into increased M&A-driven supply,” according to a Blue Owl spokesperson.
Representatives for Blackstone and Ares declined to comment.
Lenders also point to 2024 as a record year for refinancings, as many private equity firms looked to cut borrowing costs for their portfolio companies. Direct lenders repriced much of their portfolios, which led to elevated deployment numbers.
Private credit deployment can fluctuate dramatically, especially in times of volatility. Golub Capital BDC Inc. committed about $557 million to new investments in the second quarter, according to a filing. That’s up from $435 million from a year prior, but less than half what the BDC deployed in the fourth quarter.
Golub didn’t immediately respond to requests for comment.
Many private credit firms have been also trying to diversify away from direct corporate lending, which BDCs are typically reserved for. Lenders have pivoted their focus to areas such as asset-backed finance to keep up deployment volumes.
“A lot of lenders aren’t set up to do deals beyond the new money leverage financing since that is their bread-and-butter,” said Matthew Schernecke, a banking and loan finance partner at Hogan Lovells. “There is activity, it’s just in a different segment than is typical for direct lending, but we won’t see the number and volume of deals that we saw a few years ago.”
With uncertainty around tariffs and the economy, managers are preaching selectivity, which is leading to more borrower-friendly terms on some deals.
“It’s very competitive for the high-quality assets, which has led to borrower-friendly terms,” said Birkett at Configure Partners. “So you’re seeing higher leverage and lower pricing for the things that did get done.”
Dispersion between fund performance is also starting to show as some borrowers have come under stress. FS KKR Capital Corp., a BDC operated by Future Standard and KKR & Co., deployed more in the quarter than the year prior, but saw credit quality deteriorate. About 3% of FSK’s investments were classified as non-accruals in the second quarter, up from 2.2% at the end of December, according to a filing.
The fund reported losses from debt restructurings in the second quarter and a high proportion of its income was paid in kind, meaning borrowers are deferring cash interest payments, according to a report from Fitch Ratings, which downgraded its outlook for the fund to negative.
A representative for KKR declined to comment.
The deployment volume of private credit has dropped as banks have underwritten record volumes of leveraged loans in recent months, thanks to an uptick in repricings and refinancings.
That’s narrowing spreads on deals, which has “driven some BDCs to limit their origination activity,” said Chelsea Richardson, a senior director at Fitch Ratings. “They are passing on deals where spreads and terms have been aggressive.”
More mergers and acquisitions might quell some of the competition between banks and private credit, with more deals to go around. The drop in deployment volume may become a blip if deals start to tick up.
The number of deals Ares Capital Corp. reviewed in the second quarter was up 20% from the prior period, the fund’s chief executive officer, Kort Schnabel, said in an earnings call last month.
“I think it’s going to improve slowly in the rest of this year and then more quickly next year,” David Golub, the president of Golub Capital, said during an investor call last week, speaking about the market for mergers and acquisitions. “I’m humble about this prediction. We’ve all been pretty consistently wrong on this.”
© 2025 Bloomberg L.P.
A survey reveals seven in 10 expect it to be a source of income, while most non-retired respondents worry about its continued sustainability.
AI suite and patent for AI-driven financial matchmaking arrive amid growing importance of marketing and tech among advisory firms.
The RIA's addition in Dallas, previously with Raymond James, comes just as the take-private deal between Corient's parent firm in Canada and Mubadala Capital comes to completion.
LPL's head of HNW planning says too many advisors are making a common mistake.
Market risk index shows hidden perils in seeking safety, and potential benefits from non-traditional investment vehicles.
Stan Gregor, Chairman & CEO of Summit Financial Holdings, explores how RIAs can meet growing demand for family office-style services among mass affluent clients through tax-first planning, technology, and collaboration—positioning firms for long-term success
Chris Vizzi, Co-Founder & Partner of South Coast Investment Advisors, LLC, shares how 2025 estate tax changes—$13.99M per person—offer more than tax savings. Learn how to pass on purpose, values, and vision to unite generations and give wealth lasting meaning
