So, Who Can Switch When Private Credit Tightens?

The answer this series has built toward is conditional but clear: the borrowers most able to switch are larger middle-market firms that have already accessed both private credit and leveraged loans, whose new financing fits the syndicated market, and whose alternative remains funded when private credit tightens. Smaller firms that borrow mainly or exclusively through private credit are more exposed because the existence of a large LL market does not give them an entry ticket. A previous both-market loan improves the odds of adjustment; it does not guarantee a new loan, a lower price or protection from simultaneous stress.

The distinction is between an available market, an eligible borrower and a reliable outside option. Private credit and leveraged loans are large and overlapping markets, but their lender structures, information requirements, liquidity and funding channels differ. Those differences shape who can move, when movement occurs and what the move costs.

An outside option has three gates

The first gate is market access. Private credit is commonly originated and held by private debt funds and BDCs in bilateral or small-group relationships. That structure can accommodate bespoke terms, faster execution and renegotiation with fewer lenders. Leveraged loans are more often arranged and syndicated by banks, then distributed to a broad institutional investor base through CLOs, funds, ETFs and other investors. A borrower moving into LL must therefore enter a bank-arranged distribution process, not simply find another private lender.

The second gate is borrower fit. In the Federal Reserve’s 2025 issuance comparison, the median PC borrower had revenue of $223 million, median leverage of 5.0 times debt to EBITDA and average interest coverage of 2.2 times. The corresponding LL figures were $902 million, 3.2 times leverage and 3.7 times interest coverage. The median loan was $20 million in PC and $275 million in LL. These are not eligibility rules, but they show why the typical borrower in each market arrives with different scale, risk and financing needs.

A borrower may value PC precisely because a direct lender can understand a less standardized credit, work with limited public information or tailor the covenant package. That value does not necessarily carry into a syndicated market. An LL arranger and its investors need a transaction that can be evaluated, documented, sized and distributed. A company that has never borrowed in LL may still be eligible in principle, but the evidence of access is weaker than for one with a demonstrated both-market history.

The Federal Reserve’s borrower profiles make that history visible. Among firms issuing debt from 2020 through 2025, 32.1% had accessed both markets, 38.9% were PC-only and 29.0% were LL-only. Among larger firms, 40.9% had accessed both, 43.2% were LL-only and 15.9% PC-only. Among smaller firms, only 25.3% had accessed both, while 56.9% were PC-only and 17.9% LL-only. The source defines larger firms as those above $250 million in revenue and smaller firms as those below it. The threshold is an analytical cutoff, not a universal underwriting rule; its value is that the groups display different observed histories of access.

Those profiles should not be mistaken for permanent identities. A PC-only classification means that a firm borrowed exclusively from PC up to the relevant date in the sample. It does not reveal whether the firm was rejected by LL lenders, never applied, preferred private terms or faced a transaction that did not fit syndication. A both-market classification means that a switch occurred at some point in the observed history.