New signals showing the health of the private credit market emerged in the second quarter of 2026, indicating a changed landscape as lenders and investors alike reassessed their exposure to the alternative ***** et class and once-favored sectors.
The war in Iran stymied hopes for a return of M&A and buyout activity that seemed to be taking shape in late 2025. This development compounded existing negativity for private credit in the wake of a rough start to 2026, after the release of Anthropic's Claude Cowork fueled a global sell-off of publicly traded software and IT companies and raised concerns about business models of software-as-a-service companies.
Matt Harvey, head of middle-market direct lending for PGIM's private capital business, said that prior to the US attack on Iran, reduced uncertainty over tariff policy had led to a burst of direct-lending activity, which amounted to "pent-up demand." For PGIM, Q4 2025 was the firm's busiest quarter on record. PGIM's direct lending business focuses on "real economy" borrowers, such as food and beverage; consumer services that are staples, such as home repairs; value-add industrial services and products, such as distribution logistics; and certain areas of healthcare. The business has little exposure to software. PGIM focuses on midsize companies generating EBITDA of $25-75 million.
"Valuations are starting to become a little more realistic," Harvey said. "Our pipeline has never been fuller on deals ready to go."
Pricing on a typical non-sponsored loan financing is approximately S+500, with 40-50% loan-to-value, 4x leverage, 60% equity, and 1-2 covenants, according to Harvey. This spread is wider than it was a year ago, he said.
The war in Iran stymied hopes for a return of M&A and buyout activity that seemed to be taking shape in late 2025. This development compounded existing negativity for private credit in the wake of a rough start to 2026, after the release of Anthropic's Claude Cowork fueled a global sell-off of publicly traded software and IT companies and raised concerns about business models of software-as-a-service companies.
Matt Harvey, head of middle-market direct lending for PGIM's private capital business, said that prior to the US attack on Iran, reduced uncertainty over tariff policy had led to a burst of direct-lending activity, which amounted to "pent-up demand." For PGIM, Q4 2025 was the firm's busiest quarter on record. PGIM's direct lending business focuses on "real economy" borrowers, such as food and beverage; consumer services that are staples, such as home repairs; value-add industrial services and products, such as distribution logistics; and certain areas of healthcare. The business has little exposure to software. PGIM focuses on midsize companies generating EBITDA of $25-75 million.
"Valuations are starting to become a little more realistic," Harvey said. "Our pipeline has never been fuller on deals ready to go."
Pricing on a typical non-sponsored loan financing is approximately S+500, with 40-50% loan-to-value, 4x leverage, 60% equity, and 1-2 covenants, according to Harvey. This spread is wider than it was a year ago, he said.
28 days ago
