Freshfields Partners Author Chapter for ICLG Lending & Secured Finance Laws and Regulations 2026 Guide
A team of Freshfields private capital partners including Damian Ridealgh, Denise Ryan and Catalina Ford have contributed the chapter “Recent Developments in U.S. Term Loan B” to the ICLG Lending & Secured Finance Laws and Regulations 2026 guide.
Recent Developments in U.S. Term Loan B
The U.S. leveraged loan market has been on a sustained upswing over the last few years driven by strong institutional investor demand and a borrower-friendly environment. Even against a backdrop of macro uncertainty including rate hikes, geopolitical conflict and elevated defaults, the fundamental direction of travel has been consistent: more flexibility for borrowers, looser covenants and increasing convergence with high yield bond documentation.
Covenant Erosion is the Defining Trend
The single most consistent thread across time is the steady loosening of covenant protections in Term Loan B (TLB) agreements. "Covenant-lite" structures, once a notable feature, are now effectively the market standard. Financial maintenance covenants have largely been replaced by incurrence-based covenants, meaning lenders have progressively fewer automatic triggers to intervene. Borrowers have secured greater Day-One Capacity to incur debt, make investments and pay dividends immediately after closing. Those thresholds have only grown over time and borrowers carry significantly more structural flexibility than they did even five years ago.
The Rise (and Maturation) of Private Credit
Private credit has transformed from a niche alternative into a major structural force in the lending market, growing to over $1.7 trillion in assets under management. Initially a refuge for borrowers who didn't fit the broadly syndicated market, private credit flourished and expanded well beyond its traditional sponsor-backed leveraged buyout roots by moving into specialty finance, asset-backed lending and investment-grade opportunities. Banks have responded not by ceding ground, but by partnering with or building their own private credit platforms, blurring the lines between the two markets. The competition between banks and private credit continues to shape pricing and documentation norms across both.
Liability Management Transactions (LMTs): From Controversy to Norm
What were once seen as aggressive, controversial restructuring tactics have become routine features of the distressed debt landscape. The market has spent several years in a reactive cycle where borrowers execute a new LMT structure, lenders respond with documentary "blockers" and borrowers find new workarounds. The emergence of "omni-blockers" and cooperation agreements among lenders reflects an attempt to get ahead of this cycle, though both remain contested and their effectiveness is still being tested in the courts.
Pricing Dynamics and the Rate Environment
After years of aggressive rate hikes, the shift toward rate cuts has meaningfully affected the leveraged loan market. Repricing activity has dominated recent market activity over new issuances and kept spreads compressed. Structural features like soft call protection and margin step-downs have evolved, but the broad direction has been toward lower all-in costs for borrowers and shorter protection windows for investors.
Regulatory and Structural Tailwinds
Post-global financial crisis regulation constrained bank lending capacity for years. The current deregulatory environment is expected to reverse some of that, potentially unlocking significant additional lending capacity. Combined with private equity dry powder waiting to be deployed, the structural setup points toward continued strong leveraged loan activity — and continued borrower leverage at the negotiating table.
Bottom Line
The TLB market has undergone a slow but fundamental shift in the balance of power toward borrowers. Covenant flexibility, creative financing structures and the competitive pressure from private credit have collectively made loan documentation more permissive with each cycle.
To read the full chapter online, click here.
