Meeting in the Middle: Loan Market Convergence

Who is lending has changed

In the lender base, one of the biggest changes we've seen from our vantage point, providing trustee and agency services, is direct lenders moving upmarket into deal sizes once handled by bank-led syndicates. A small club of asset managers or a single manager can take down a multibillion-dollar leveraged buyout (LBO) financing, which would have been the almost exclusive province of BSL five years ago. The direct model is attractive because of relatively speedy execution, higher certainty of close, and the absence of syndication risk. The lender club is fully assembled and committed at the time of signing, often without a subsequent syndication step.

Banks have responded on two tracks. Some have entered joint ventures with direct lenders to offer commercial banking clients both the syndicated and direct lending paths. Others have stood up direct lending funds inside their asset management arms, raising capital from individuals and institutions to lend directly to middle-market borrowers. These developments create scenarios where banks can behave more like direct lenders than they would otherwise.

Our broader research also shows the pattern moving across geographies at different speeds. The U.S. private credit market is materially deeper than Europe’s, where bank lending still accounts for a larger share of corporate financing. European bank market share in 2024 was still 76% versus 21% in the U.S., while non-bank lending share was only 12% in Europe/UK versus 75% in the U.S. European direct lending is gaining ground, however. European direct lenders deployed €115 billion in 2025, up 23% from 2024. We see the same joint venture and bank-fund pattern emerging there.

The result, on both continents, is that the same handful of capital providers now show up on both sides of what used to be two distinct markets.

Deal structures have changed

Features are also converging. Deal characteristics that used to live exclusively on the direct lending side now appear in syndicated deals. These include delayed draw term loans (DDTLs) creeping into BSL paper, hybrid covenants, and non-pro-rata facilities. Where BSL was once a relatively narrow A, B, C, D tranche convention, it now includes bespoke tranches, which used to be a common feature of private credit facilities alone.

The traffic runs the other way, too. Direct lending is developing more templated documentation as it serves the same lender-sponsor combinations. The first deal with a new asset manager involves heavy negotiation over document standards, after which each subsequent deal with the same lender builds on the precedent more readily.

However, substantive differences remain. Both markets retain their core identities, while individual deals draw on features from both. What looks syndicated on its face may include direct-lending mechanics, and what looks like a private credit deal may borrow documentation conventions from the syndicated playbook.

Within CLOs, this convergence is not happening within specific collateral pools. For the most part, pools have stayed segregated by asset type, with each holding to its own diversification and trading profile. From what we're seeing as a provider to CLO trustee services in the U.S., BSL CLO pools typically run across a much larger position count than the smaller, less actively traded private credit pools. The convergence on the CLO side is happening earlier in the lifecycle, in warehousing structures and asset-based lending facilities where managers may use BSL exposure to build par before rotating into private credit or middle-market assets.

What it takes to run such deals

Hybrid structures, bespoke covenants, and nonstandard intercreditor terms make the deal documents more complex. But agents and trustees run under one overarching principle, that deal docs prevail. More bespoke docs take more careful reading.

When a direct lending borrower runs into cash flow pressure, the path isn't always a standard restructuring or refinancing. They might get an incremental add-on facility, a covenant waiver, or a forbearance instead. The agent has to process each one precisely and reflect it in the documentation and systems.

Delayed Draw Term Loans (DDTLs) are desirable features for borrowers, so BSLs increasingly offer them. But they create a different problem at scale. Executing a delayed draw on a syndicated deal means pulling funds from several hundred lenders on the same day, with no fronting bank to absorb the timing. That is easier to achieve in a small private credit club.

Documentation variances are the third administrative pressure point. They demand careful orchestration of loan management systems, with workarounds and manual comments filling the gap. These workarounds accumulate over time, while creating downstream dependencies for trustees and collateral administrators who can’t run their own straight-through processes when upstream notices don’t carry the data their systems expect.

For trustees and collateral administrators, the operational differences between BSL CLOs and private credit CLOs come down to how the underlying paper processes through the system. This phenomenon is evident in the CLO services we deliver in the U.S.. On the private credit side, paper-based trading and participations are still common, and agent notices come in less standardized form. Rating treatment also differs. BSL receives daily feeds from the major agencies, while private credit relies on private rating letters that update annually, often from a different mix of agencies. That divergence in workflow is where the day-to-day complexity lives.

However, not every variation is fully unique. Across a long run of deals patterns emerge, such that subsequent deals can lean on the precedent. The upfront negotiation of standards on the first deal is what makes that pattern possible. As agents, sub-agents, trustees, and collateral administrators on both kinds of paper, we see this convergence reshaping every step of the loan market lifecycle. Familiarity with these patterns and nimbleness within them keep the work moving as the deals get more bespoke.

What to consider next

If you’re evaluating the operational implications of hybrid credit, our team can walk through key considerations with you. Connect with Wilmington Trust’s Loan Market Solutions team.