M&A Landscape: Private Credit Reshapes Deal Structures

Private credit now writes dealmaking's rules, and India's banks have just been invited back in.

By Fiscal Metrics Research14 August 2026 842

M&A Landscape: Private Credit Reshapes Deal Structures — · *Unsplash*

Something has quietly inverted in how deals get done. For most of the last two decades, a buyer agreed a price and then went looking for money. Commitment letters, a syndication process, a market-flex clause that let the arranger reprice the debt if investors sulked. Today the money often turns up before the price does, and it arrives with firm views on how the deal should be built.

That shift has a name, and 2026 has handed it the busiest stage it has ever had.

Global M&A reached roughly $2.8 trillion in announced value in the first half of 2026, up about 48% year on year and the strongest first half since LSEG began keeping records in 1980. Yet the number of transactions fell 9%, to around 24,000, a six-year low. Forty-seven deals above $10 billion accounted for more than $1.3 trillion between them, close to half of all global activity. Fewer deals, far bigger cheques.

That is precisely the kind of market in which the identity of the lender starts to matter more than the coupon.

From alternative to default setting

Direct lending has stopped being the fallback option. It now stands roughly shoulder to shoulder with the broadly syndicated loan market at $1.5–2 trillion, and is forecast to reach $3 trillion by 2028. Moody's expects private credit assets under management to clear $2 trillion during 2026 and approach $4 trillion by 2030.

What acquirers are buying from these funds is rarely cheap debt. It is certainty. A unitranche facility from one or two lenders can be negotiated in weeks, documented in a single agreement, and funded on the closing date without anyone needing to test investor appetite. No flex. No ratings process. No leak into the market while the target's staff are still unaware. In a competitive auction, financing that is genuinely committed is not a back-office detail; it is part of the bid.

The trade is straightforward. The borrower pays a premium for speed and confidentiality. In return, the deal gets structured around what a fund can hold, not what a syndicate will buy.

Five structural fingerprints

1. The capital stack collapsed

Senior debt, a mezzanine layer and a heavily negotiated intercreditor agreement have largely given way to a single unitranche instrument. One document, one blended rate, one counterparty to call when an amendment is needed. The older structure can still be cheaper where the mezzanine carries equity upside, but it moves slowly.

2. Covenants became negotiable

Private credit's founding pitch included real maintenance covenants: a quarterly leverage test with a 25–35% cushion over the base case. As funds pushed into large-cap territory, they carried borrower-friendly syndicated-market habits with them. Covenant-lite terms are now common in large unitranche and senior direct lending. Add generous EBITDA add-backs, grower baskets and most-favoured-nation protections that lapse within a year, and the headline leverage on a term sheet becomes a soft number.

3. Interest became optional

Payment-in-kind toggles let borrowers roll interest into principal instead of paying cash, usually at a premium. Where a fund's mandate caps how much PIK it can hold, lenders build a synthetic version: a delayed-draw tranche sitting alongside the main loan that the borrower draws down specifically to service cash interest. The interest is technically paid; it is simply paid with more debt.

4. Debt learned to travel

Portability provisions, once almost unheard of outside the bond market, now appear routinely in larger private credit deals. They allow financing to survive a change of control, so a sponsor can sell without triggering an expensive refinancing, and a buyer can inherit a below-market loan. Lenders impose guardrails on who the incoming sponsor may be, but the direction of travel is clear.

5. The financing moved upstairs

Holdco PIK notes, preferred equity and NAV facilities let sponsors raise capital above the operating company entirely. A bolt-on can be funded without reopening the senior documents. A partial realisation can be engineered without selling the asset. These instruments are expensive and structurally subordinated, and they are among the fastest-growing corners of the market.

The most consequential thing private credit changed is not the price of money in a deal. It is who sits across the table when the plan stops working, and how long the documents let everyone avoid saying so.

The pendulum is swinging back

None of this is a one-way street. Banks have rediscovered their appetite for underwriting and are competing hard to win back share, while simultaneously building direct lending arms of their own. Sponsors on larger transactions now run dual-track financing processes as standard, playing the syndicated market against the funds and keeping a private backstop in reserve.

Competition has done what competition does. Average pricing on large-cap private credit deals sat at roughly SOFR plus 500 basis points by the fourth quarter of 2025, about 20 basis points tighter than at the start of that year, with the strongest credits clearing well inside that. The syndicated market has responded by borrowing private credit's tricks, offering delayed-draw optionality and pricing sharply to avoid the need to flex. Convergence is the honest description, not conquest.

The bill for all that flexibility

Flexibility is not free, and the invoice has begun to arrive.

Research from the Federal Reserve Bank of Boston finds that the share of business development company loans using PIK rose from around 6% in early 2022 to roughly 10% by early 2026, an increase of about two-thirds. The rise runs across nearly every industry in the sample, which makes it hard to dismiss as a quirk of one troubled sector. Construction is the standout, climbing from under 5% to close to 20%.

PitchBook's review of the twelve largest listed BDCs through the first quarter of 2026 points the same way: non-accruals rising by both borrower count and cost basis, distressed marks increasing, and PIK loans written down harder than the rest of the book. The IMF's 2025 stability assessment found that roughly 40% of private credit borrowers had negative free cash flow, up from about 25% in 2021. Headline default rates remain below 2%, but once liability management exercises and selective defaults are included, the working estimate across the industry is closer to 5%.

The Federal Reserve's May 2026 stability report judged redemption risk in the sector manageable, even after several large non-traded BDCs restricted investor withdrawals in the first quarter. Manageable is reassuring. It is not the same as quiet.

For anyone reading a set of accounts, the single most useful number is PIK income as a share of total investment income. Below 5% is comfortable. Above 10% suggests borrowers are no longer generating the cash to service what they owe.

India: the rules changed in July

India arrived late to this market and is now moving quickly. EY tracked $12.4 billion of private credit investment across 166 transactions in calendar 2025, a 35% jump in value. The first half of 2026 brought a further $3.5 billion across more than 100 deals above $10 million, broadly level with the preceding half-year. Real estate took 35% of deal value, healthcare 13%, food and beverage 12%. Domestic funds accounted for about 74% of value and 79% of volume, which is the more interesting statistic: this is no longer an offshore story.

Refinancing, holding company funding and acquisition financing drove most of that deployment, and there was a structural reason for the last of those. Indian banks were effectively barred from lending against share acquisitions, so buyers relied on NBFCs, non-convertible debentures and private credit funds.

That prohibition has now gone. The RBI issued amendment directions on 13 February 2026 permitting banks to finance acquisitions of equity shares and compulsorily convertible debentures where the transaction delivers control. Implementation was pushed from 1 April to 1 July 2026 after banks asked for operational clarity. The conditions are deliberately tight: bank exposure capped at 75% of transaction value, leaving a mandatory 25% acquirer contribution; a minimum acquirer net worth of Rs 500 crore plus profits in each of the three preceding financial years; an investment-grade rating for unlisted acquirers before disbursement; consolidated post-deal debt-to-equity held at or below 3:1; a pledge over the acquired shares as primary security; and a corporate guarantee from the acquirer or its parent.

Banks may also refinance existing acquisition debt, which points a loaded weapon at paper written by AIFs and NBFCs when they were the only option. Moody's expects the change to lower financing costs for borrowers while compressing yields for private credit providers. State Bank of India has tied up with MUFG, and Bank of Baroda with Mizuho, to pursue acquisition mandates jointly.

Even so, the eligibility gates leave a great deal outside the bank perimeter: promoter consolidation, pre-IPO bridges, sponsor-led buyouts that do not fit neatly into the definition of strategic control, targets carrying leverage that breaches the 3:1 test, and foreign-owned and controlled acquirers who remain restricted. That is private credit's lane, and it is not narrowing. EY's June 2026 pulse survey found 73% of respondents expecting strong activity over the next one to two years, with two-thirds targeting returns above 18%. The same survey flagged real estate, the sector taking the largest share of capital, as carrying the highest perceived default risk.

What boards and finance teams should actually do

Three habits are worth building.

Read the documents rather than the headline leverage. Where a structure carries PIK or a payment-style delayed-draw tranche, this year's cash interest tells you very little about next year's obligation.

Interrogate the add-backs. A leverage covenant calculated on EBITDA that includes unrealised synergies at a 25–35% cap is measuring an ambition, not a business.

Check portability and reporting. Whether the debt survives a sale, and how much information the lender receives between tests, determines how much warning anyone gets when performance slips.

Private credit did not simply add another lender to the table. It changed the shape of the table. The discipline now sits in the drafting, not in the market.