Private Credit News Weekly Issue #79: Spreads Collapse, Banks Win, and Blue Owl Buys the Dip

Private loan margins fall below 500 bps as banks price at 285 bps while executives spend $115 million buying their own BDC shares

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Private credit’s profitability problem just got worse. Median loan margins fell below 500 bps last quarter, down from 650 bps in Q1 2023. Banks are pricing at 285 bps in the US and 360 bps in Europe. That’s not competition. That’s capitulation.

The records keep falling. Permira’s Key Group got 450 bps from Goldman Sachs Asset Management, Macquarie, and Apax Credit. JTC priced £1.5 billion at 450-475 bps. Squarespace secured 400 bps from Blackstone. Each deal sets a new low. Each low becomes the new ceiling.

“Competition is way tougher in 2025 for private credit firms,” said Chris Cessna of Houlihan Lokey. “There’s competition among private credit lenders themselves, which raised a lot of capital and are chasing the same deals, as well as from the broadly syndicated market.”

The math is simple. Limited partners still get returns just under 10% from private credit versus roughly 7.5% from leveraged loans. But the gap is closing fast as base rates fall and spreads compress. Markets are pricing 90% certainty the Fed cuts another quarter-point next week.

Blue Owl executives are betting the selloff is overdone. Management and employees bought $115 million of the firm’s publicly traded BDC shares in the past month. Craig Packer spent nearly $1 million buying 83,200 shares at $11.75 on November 18, the same day the firm killed its BDC merger. Total insider purchases exceeded $200 million across Blue Owl entities.

The Hologic deal showed the new division of labor. PSP Investments, Oaktree, Franklin Templeton, and others bought $2 billion of subordinated debt at 500 bps that banks committed to as part of a $12.25 billion package. Private credit gets the junior paper. Banks keep the senior relationship and fees on the whole package.

Meanwhile, Blackstone is negotiating to provide $5-10 billion to Australian AI startup Firmus at 500-550 bps, contingent on securing client contracts. When the world’s largest alternative manager is structuring deals this way, capital deployment pressure is overwhelming traditional discipline.

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Key Market Themes

1. Margin Compression Hits Record Pace

Median private loan margins dropped below 500 bps from 650 bps in Q1 2023. Banks are pricing 215 bps tighter in the US and 140 bps tighter in Europe. The gap is forcing lenders who once dealt exclusively with large borrowers to chase smaller deals, heating up competition everywhere.

“Lower spreads in the broadly syndicated market are driving down the pricing of larger private credit loans, affecting even bilateral deals,” said Philip Bowden of Proskauer Rose. Private credit funds are pitching German insurance broker Global Gruppe with a 1% fee and 450 bps pricing.

Limited partners still get returns just under 10% versus 7.5% for leveraged loans. But easier monetary policy hits private credit harder because most loans are floating-rate. Markets price 90% certainty of another Fed cut next week.

The Squeeze

According to Cessna, “if a substantial M&A volume does not materialize, there is not much lower spreads can go for debt funds to generate enough returns and make their business plans work.” Signs of M&A revival could ease pressure, with 2026 forecast as a bumper year. The question is whether spreads can hold until deals arrive.

2. European Records Fall in Weeks

Permira’s Key Group negotiated 450 bps from Goldman Sachs Asset Management, Macquarie, and Apax Credit on a £335 million facility. JTC priced £1.5 billion at 475 bps for pounds and euros, 450 bps for dollars. Squarespace got approximately 400 bps from Blackstone.

Three deals, three records, all within weeks. Yet those margins still can’t match bank pricing at 285-360 bps with fewer covenants and deeper liquidity.

3. Blue Owl Executives Buy $115 Million of Shares

Craig Packer bought 83,200 BDC shares at $11.75 on November 18, the day the merger collapsed. Co-CEOs Doug Ostrover and Marc Lipschultz each bought roughly $2.4 million of parent company shares. CFO Alan Kirshenbaum added $500,000. Total insider and company purchases: over $200 million in a month.

The BDC trades at a 21% discount to NAV. The fund’s $200 million buyback program aims to close the gap by reducing shares outstanding. OBDC is up 2.69% since October 31.

Liquidity Clock

The private fund that was set to merge has until April 2028 to find a liquidity solution before considering wind-down. It suspended redemptions after honoring requests exceeding the 5% limit but plans to resume in Q1 2026.

4. Hologic Shows New Bank-Private Credit Model

PSP, Oaktree, Franklin Templeton, Palmer Square, Oak Hill, Sona, Lord Abbett, and Blackstone Credit bought $2 billion of second-lien debt at 500 bps, 99 cents on the dollar. Banks underwrote the full $12.25 billion package including $9.5 billion of first-lien loans.

Because Blackstone and TPG lined up buyers for the subordinated portion, banks receive only marginal fees from that slice. The structure shows how the two sides cooperate on marquee buyouts: direct lenders take riskier junior paper that offers needed yields, banks keep senior relationships.

Not all bank-led deals open doors. Private credit was excluded from the $20 billion EA package and $7.9 billion Sealed Air financing.

5. SRT Market Could Double to €2.6 Trillion

Man Group forecasts the significant risk transfer market could double over five years as banks increase usage. Since 2016, default risk on more than €1.3 trillion of loans has been transferred using SRTs, with a third in the past two years.

Man Group identifies SRTs and core middle-market direct lending as niches allowing investors to sidestep broader market concerns. “This environment favours unconstrained approaches that search for value, rather than broad market exposures, particularly as many sectors remain vulnerable to significant widening should growth slow.”

6. Blackstone Eyes $5-10 Billion Australian AI Bet

Blackstone is negotiating $5-10 billion in asset-backed debt at 500-550 bps over BBSW for Australian AI infrastructure startup Firmus, which just tripled its valuation to $6 billion. The financing could fund chip purchases entirely via debt, but it’s contingent on securing firm client contracts.

Sources say Blackstone has exclusivity with a deal likely within two weeks. The pitch: strategic debt investment in data center adjacencies to its $24 billion AirTrunk acquisition, enhancing sector influence. Firmus pivoted from bitcoin mining to GPUs-as-a-service, with Nvidia as supplier, investor, and future client.

The deal is noteworthy because Firmus is relatively new in a market with intense global demand for infrastructure debt.

Deals of Note

• Hologic - PSP, Oaktree, Franklin Templeton, others buy $2B second-lien at 500 bps, 99 cents, part of $12.25B package for Blackstone-TPG buyout

• Squarespace - Blackstone-led group provides ~$400 bps, among lowest US private credit spreads on record

• Key Group - GSAM, Macquarie, Apax provide £335M at 450 bps, lowest European pricing ever

• JTC - Blackstone leads £1.5B at 450-475 bps across three currencies

• El Jannah - General Atlantic secures A$300M from Ares and Nomura at mid-to-high 4x leverage, ~500 bps

• Firmus - Blackstone negotiating $5-10B asset-backed at 500-550 bps for Australian AI startup, contingent on contracts

The Reality Check

Margins dropping 150 bps in under three years while banks price 215 bps tighter isn’t cyclical. It’s structural repricing driven by capital oversupply and bank resurgence.

The Permira trifecta proves pricing floors don’t exist. Key Group at 450 bps, JTC at 450-475 bps, Squarespace at 400 bps. Three quality sponsors, three new lows, all within weeks. Private credit won the deals by matching bank economics, which means accepting bank returns.

Blue Owl insiders buying $115 million at a 21% NAV discount signals conviction the market is mispricing risk. Whether Packer’s right depends on spreads stabilizing or continuing their descent.

The Hologic structure reveals the new equilibrium: banks underwrite full packages, sell junior paper to private credit at 500 bps, collect fees on everything. Direct lenders get access but at subordinated pricing. Banks keep senior relationships. Nobody’s fighting anymore. They’re dividing the spoils.

Blackstone negotiating $5-10 billion for Firmus contingent on future contracts shows how far deployment pressure pushes discipline. That’s venture execution risk at debt pricing. When the largest alternative manager structures deals this way, the message is clear: capital must work, even if terms don’t.

Cessna says spreads can’t go much lower and still generate returns. But business plans are already changing. The compression hasn’t finished. It’s accelerating.