Debt Finance 2026

Navigating the Dynamics of Global Debt Finance Markets

This Practice Guide focuses on key topics in debt finance. Legal practitioners from various jurisdictions will analyse both law and practice and trends and developments in the debt finance market in their home country.

Market overview and key trends in 2025

Global debt finance markets have undergone significant changes over the past year. The economic climate of 2025, characterised by challenging conditions such as fluctuating interest rates, the ongoing wars in Ukraine and Gaza, increasing geopolitical uncertainty and continued regional instability in the Middle East, turbulent international dynamics and adoption of economic tariffs have all impacted market dynamics.

Debt markets have, however, demonstrated resilience, with innovative financing structures and continued investor appetite for high-quality collateral. At the same time, lenders have recalibrated their risk assessments in response to macroeconomic and geopolitical uncertainty, often becoming more selective, with tightened lending terms for weaker credits, but increased competition for stronger borrowers. In addition, regulatory and compliance considerations have continued to intensify.

One significant trend in 2025 has been the continued strength of leveraged loan issuances. In the United States, the leveraged loan market was exceptionally active, with syndicated volume reported at around USD1 trillion, the second-highest on record despite ongoing policy uncertainty. In addition, CLO primary new issuance hit a record high in 2025, continuing to fuel the refinancing wave as demand exceeded supply.

In Europe, leveraged loan issuances climbed, though less dramatically than in the US, and activity was primarily driven by refinancing, as borrowers took proactive steps to address upcoming maturities and optimise capital structures. This also reflects cautious optimism that financing conditions will remain favourable, at least in the short term. However, challenges remain, particularly as investors continue to scrutinise borrowers’ credit quality, leading to increased differentiation in pricing and covenant structures across different sectors and credit ratings.

Private credit and direct lending have also continued to grow, with institutional demand remaining strong. The expansion of private credit has not only provided borrowers with alternative sources of funding but has also introduced new complexities into debt finance transactions. Direct lenders, unlike traditional banks, often provide bespoke financing arrangements that incorporate greater flexibility but also demand enhanced lender protections. The rise of unitranche financing, where senior and junior debt are consolidated into a single facility, has been particularly notable, offering borrowers easier access to capital while providing lenders with enhanced security packages.

Another key trend has been the continued growth in reliance on asset-based lending (ABL), which remained especially relevant for mid-market borrowers and those facing liquidity constraints. ABL, which relies on collateral such as receivables, inventory and equipment, is also attractive to lenders seeking to mitigate credit risk amid economic uncertainty, favouring secured structures and focusing on downside protection and recoveries. Asset-heavy businesses in sectors such as manufacturing, retail and transportation have found ABL structures more favourable than traditional term loans.

The structured finance market has continued its strong recovery, with sustained high demand for collateralised loan obligations (CLOs) and asset-backed securities (ABS). Institutional investors in particular have continued to be drawn to these instruments due to their ability to offer diversification and risk-adjusted returns, despite ongoing concerns about credit quality and the continued regulatory intervention.

In Europe at least, sustainability-linked loans and green bonds remain an integral part of the financing strategy of many companies, supported by an evolving regulatory framework. Borrowers with strong ESG credentials have been able to secure financing on preferential terms, benefiting from lower interest rates tied to key performance indicators related to environmental and social impact. At the same time, scrutiny of ESG-related financing has intensified, driving a shift toward more robust and standardised structures.

2026 outlook

Looking ahead to 2026, the debt finance market remains at an inflection point. The interplay between regulatory developments, geopolitical and macroeconomic factors and corresponding shifts in investor sentiment will continue to shape global financing activity. Lenders are expected to place greater emphasis on structural protections while borrowers will need to navigate increasingly complex compliance and reporting obligations as well as uncertain, and at times conflicting, policy directions. Against this backdrop, legal practitioners can play an important role in structuring transactions that balance the need for flexibility for borrowers with adequate risk mitigation for lenders.

Liability management exercises and other debt restructuring strategies are expected to remain prominent as significant debt maturities are approaching and borrowers need to continue to raise debt capital in the absence of unencumbered assets.

In somewhat of a counter-development, the strengthening of protective covenants in loan documentation is also expected to continue to be a defining trend. In contrast to the pre-pandemic era, when covenant-lite structures became the norm, lenders are increasingly demanding stronger safeguards, ranging from maintenance covenants and stricter leverage ratios to enhanced reporting requirements. With segmentation seen according to credit quality, top-tier borrowers may still be spared and able to achieve covenant-lite structures, while weaker credits are likely to face more restrictive lending conditions, reflecting heightened lender caution in an increasingly uncertain economic environment.

Macroeconomic and geopolitical factors will also have a direct impact on borrowing costs and capital market performance. In the context of heightened political tensions and increased defence spending, global sovereign debt is expected to maintain unprecedented levels, leading to concerns about market liquidity and broader economic stability.

Regulatory developments

US regulatory landscape

In the United States, regulators have continued to increase their focus on leveraged lending, private credit and structured finance markets. The Securities and Exchange Commission (SEC) has intensified its oversight of private credit funds, through enhanced examination and particular attention to risk management practices and transparency standards. As private credit plays a growing role in corporate finance, regulators are evaluating whether additional disclosure obligations should be imposed on direct lenders to ensure market stability.

In December 2025, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation introduced a principles-based supervisory framework, replacing the 2013 Interagency Leveraged Lending Guidance. While this shift moves away from prescriptive thresholds, financial regulators continue to express concerns over relaxed underwriting standards, increasing leverage ratios and covenant-lite loan structures. As a result, banks involved in underwriting secured loans remain subject to heightened supervisory scrutiny regarding risk assessment and stress testing.

The phased implementation and recalibration of the Basel III endgame reforms would require US banks to hold additional capital against higher-risk exposures. This change could impact the availability of debt financing by making it more costly for banks to extend credit. If banks reprice and selectively optimise their portfolios due to these capital requirements, private credit funds may continue expanding their role in corporate lending markets, shifting risk outside the regulated banking system.

In addition, discussions around bank consolidations continue, and digital asset regulation continues to develop. 

European regulatory developments

In Europe, regulatory efforts continued to focus on strengthening banks’ resilience, increasing transparency in leveraged lending and integrating ESG considerations into financing transactions. The European Central Bank (ECB) maintained its supervisory attention on credit risk in leveraged lending markets, reiterating concerns about weakened lending standards and exposure to highly leveraged borrowers.

The UK has finalised the Basel III endgame rules, with implementation from 1 January 2027, following a delay in order to allow more time to gain clarity on implementation in the USA, so as not to hamper competitiveness and growth opportunities in Europe. While regulators argue that the Basel III endgame measures will strengthen financial stability, some market participants are concerned that they may reduce credit availability for leveraged borrowers.

ESG remains a central regulatory focus in Europe, with enhanced disclosure and compliance requirements impacting how lenders assess and price credit risk. The Corporate Sustainability Reporting Directive (CSRD), which began phased implementation from 2024 onwards, has significantly expanded the requirement for sustainability disclosures for companies engaging in ESG-linked borrowing.

Cross-border regulatory challenges

The divergence between US and European regulatory approaches presents additional challenges for cross-border debt financing. Companies and financial institutions operating in both jurisdictions must navigate differing capital requirements, leveraged lending guidelines and disclosure obligations.

One continuing challenge is the regulatory treatment of non-bank lenders. In the USA, private credit funds operate with fewer restrictions compared to traditional banks, allowing them greater flexibility to structure financing arrangements. European regulators, however, are increasingly scrutinising the role of non-bank lenders, with ongoing monitoring and policy discussions around potential financial stability risks associated with the growth of private credit and leveraged lending outside the banking sector.

Disparity in ESG regulation also complicates cross-border financings. While both the USA and Europe have introduced sustainability disclosure rules, European regulations – particularly the CSRD – are significantly more detailed and prescriptive. Companies issuing ESG-linked debt across both jurisdictions must comply with different regulatory standards. Financial institutions involved in sustainability-linked financing must ensure that reporting frameworks align with both US and European requirements.

This guide aims to provide the reader with an insight into the economic and regulatory environment in which the debt finance market operates in the covered jurisdictions but also to offer practical guidance on how debt finance transactions are being conducted in these countries at a more granular level. The authors hope you find it both useful and interesting.