Private Credit Expansion: Reshaping Mid-Market Transaction Financing
bIAnk AI Research · December 2025 · 7 min
Private credit has emerged as the dominant financing source for mid-market LBOs, with $1.7T+ AUM and growing. Understanding this shift is critical for deal execution.
The private credit market has fundamentally transformed mid-market M&A financing. According to McKinsey's 2025 Global Private Markets Report, private credit assets under management exceeded $1.7 trillion, with projections suggesting $2.3 trillion by 2027.
This expansion reflects several structural factors: bank regulatory constraints post-Basel III, the search for yield in a compressed rate environment, and sponsors' preference for execution certainty and flexible terms that direct lenders can provide.
For mid-market transactions ($50-500M enterprise value), private credit has become the default financing option. Vanguard's 2025 PE market outlook notes that direct lenders now capture over 80% of sponsored mid-market LBO financing, up from 60% in 2019.
The economics have evolved as well. While private credit carries a premium over syndicated loans (typically 150-250bps), sponsors value the certainty of execution, covenant flexibility, and ability to structure creative solutions for complex situations.
EY's Private Equity Pulse for Q3 2025 highlights that exit activity is recovering, which should accelerate capital recycling and sustain private credit deployment. The secondary market has also matured, providing liquidity options for LPs seeking portfolio management flexibility.
Looking forward, private credit is expanding into new asset classes including infrastructure debt, real estate lending, and asset-backed financing. This diversification provides new avenues for deal financing beyond traditional corporate lending.
Key takeaways
- Private credit AUM exceeds $1.7T, projected to reach $2.3T by 2027
- Direct lenders capture 80%+ of sponsored mid-market LBO financing
- Premium of 150-250bps over syndicated loans offset by execution certainty
- Secondary market maturation providing liquidity options for investors