From Direct Lending to ABS: Private Credit’s $3T Toolkit Fuels PE Deals

Private credit has provided essential capital support for PE sponsors, with GPs able to turn to private credit for acquisition finance, refinancings, portfolio company liquidity needs and recapitalization requirements.

The private credit space has grown into an asset class with more than US$3 trillion of AUM, according to the Alternative Credit Council, and has attracted sustained levels of LP investment. Even as fundraising dropped in other private market asset classes, private debt fundraising climbed 14.4% in H1 2025, according to Private Debt Investor.

Armed with large capital war chests and free from the regulatory and capital restrictions on banks, private credit players have been able to provide GPs with flexible capital structures on competitive terms and continue lending despite financial market unease due to elevated tariffs and geopolitical uncertainties.

“Private credit has really matured as an asset class and has been a key credit line for refinancing existing investments, as well as a reliable source of capital for new transactions,” says Dechert partner Nick Tomlinson.

The 2026 Global Private Equity Outlook survey findings show that the most common use for private credit from sponsors is refinancing and recaps at the portfolio level (57%).

The use of private credit for acquisition financing at the portfolio level comes in second place but is down from 63% in 2024’s survey to 47% this year. The drop off in private credit being used for this purpose is most pronounced among those based in APAC, at 50%, down from 75% in 2024.

The slide in the use of private credit for acquisition financing at the portfolio level, across all geographies, could be the result of a still slow M&A market. Private credit players have significant liquidity available to fund new deals and upon an uptick in deal volumes will be prepared to participate across M&A-related financing opportunities.

Product Placement

Among the types of private credit products that firms prefer using, junior debt capital and first lien/senior debt with recurring revenue loans are the joint top products (76%) followed by ABS/structured products (74%).

All three product sets have seen an increase in popularity among respondents year-on-year. For example, 82% of North American respondents say they use ABS/structured products in private credit, compared to 56% of North American respondents in last year’s survey.

The use of first lien/senior debt with recurring revenue loans has also seen a year-on-year jump across all regions surveyed. This product looks set to continue its upward trajectory, with 69% of respondents expecting to use it more over the next 12 months.

Additionally, 62% and 67% of respondents expect to increase their use of ABS/structured products and junior debt capital products, respectively, with 77% of EMEA respondents expecting to increase their use of the latter.

Just over half of respondents (51%) across all regions surveyed will also offer their LPs co-investment opportunities in private credit loans obtained by portfolio companies.

The wide range of different private debt products that GPs are using highlights how the private credit playbook has expanded beyond the industry’s core direct lending foundations and branched out into new areas. The Alternative Credit Council notes that asset-backed lending (ABL), real estate and infrastructure debt now represent 40% of total private credit AUM.

Increasing uptake of the various private credit offerings also shows how private credit players have reacted to GP requirements and tailored their products sets accordingly.

Inflationary and interest rate pressures have helped to spur the growth of emerging private credit strategies. With constrained liquidity from more familiar sources of debt, GPs have had to take a broader view and explore all their financing options. Once familiar with different private credit products, and comfortable using them, GPs will continue to do so, even as liquidity pressures ease.

“The private credit toolkit has broadened, and private credit is going to remain dominant. There are so many private credit solutions out there, and not only that, but GPs have been able to hybridize the various solutions and package them into bespoke facilities that address specific requirements,” says Markus Bolsinger, co-head of Dechert’s PE practice. “GPs are very sophisticated when it comes to optimizing capital structures. We are long past a GP raising a syndicated loan for an acquisition and that being the full extent of the financing.”