LBO and M&A activity is expected to increase in the US and EMEA in 2026, according to Moody’s Analytics. The forecast comes after a year where most regional markets recovered from volatility, trade tensions, and high-profile bankruptcies that slowed issuance in parts of 2025.
Moody’s Analytics predicts that refinancing will remain strong, while new issuance will grow as competition intensifies. Key factors influencing leveraged finance dynamics include shifts in monetary policy, increased focus on hidden leverage, greater deal competition, and the continued presence of both private credit and broadly syndicated loan lenders.
“Competition, hidden leverage, weaker documentation will increase risk in a borrower-friendly market,” Moody’s Analytics stated. “Private equity poised to reignite LBO & M&A activity.” The firm also noted that “issuance will grow; refinancing activity will remain strong.” However, they warned that “tariff shifts, inflation, and geopolitical tensions remain key downside risks that could disrupt base-case projections.”
For collateralized loan obligations (CLOs), Moody’s Analytics expects supportive financing conditions from declining interest rates to bolster performance over the next year. Speculative-grade defaults are projected to fall to 3.0% in the US and 2.4% in Europe by October 2026, down from 5.3% and 3.8% respectively a year earlier.
“US CLOs: Defaults will decline along with funding costs,” said Moody’s Analytics. “EMEA CLOs: High liquidity will keep defaults down.” The outlook suggests expanding leveraged buyout activity could boost new CLO formation if liability spreads remain tight.
The report highlights ongoing risks related to leverage, valuation, transparency, looser covenants, back-leverage structures, and payment-in-kind features as competition for quality assets increases among private credit providers and syndicated lenders.
Moody’s Analytics notes that managers may be constrained by collateral quality tests due to declining asset spreads not matched by significant changes in rating factors.
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