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- The 2026 Outlook: Rates, Spreads, and Competition
The 2026 Outlook: Rates, Spreads, and Competition
We examine how PE sponsors, bankers, consultants, and investors expect interest rates to evolve over the next 12 months.
Good morning, ! Today, we examine how PE sponsors, bankers, consultants, and investors expect interest rates to evolve over the next 12 months. Against that backdrop, 67% of private credit managers believe increasing competition among lenders and spread compression will be the most significant drivers of portfolio performance in 2026.
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MICROSURVEY
Higher for Longer Remains the Base Case
Our latest survey highlights a market that continues to grapple with uncertainty around the path of interest rates. While respondents remain divided on where the Federal Funds Rate will ultimately settle, the consensus points toward a prolonged period of elevated borrowing costs rather than a rapid return to the low-rate environment that characterized much of the last decade.
Nearly 70% of respondents expect rates to remain above 4% by year-end, with bankers and asset managers expressing the most hawkish views. Notably, almost half of corporate development executives and nearly 40% of PE sponsors expect rates to remain in the 4%–5% range, suggesting that market participants increasingly view higher financing costs as the new normal.
For private equity investors, the implications are significant. Refinancing challenges remain front and center, leveraged buyout models continue to require greater operational value creation, and credit markets are likely to remain selective. While private credit has helped bridge financing gaps, sponsors are underwriting transactions with a clear recognition that cheap debt is unlikely to return anytime soon.
As firms look toward 2027 planning cycles, the message from the market is straightforward: success will depend less on financial engineering and more on disciplined execution, operational improvement, and strategic growth. (More)
PRIVATE CREDIT CORNER
The Real Risk in Private Credit Is Not Defaults. It’s Competition.
Private credit managers are entering 2026 with a surprising concern. It is not rising rates. It is not regulation. It is not even borrower distress.
According to PwC survey data, 67% of respondents believe competition and spread compression between lenders will have the greatest impact on portfolio performance in 2026, ahead of borrower defaults and credit losses (64%) and macroeconomic trends (55%).
That ranking says a lot about where the market stands today.
Credit quality remains a concern, but investors appear increasingly focused on what happens when too much capital chases too few deals. As direct lenders compete for deployment, spreads tighten, covenant protections weaken, and underwriting discipline comes under pressure. The result is that future performance may be determined less by avoiding bad credits and more by avoiding bad structures.
The takeaway for private credit managers is simple: alpha is shifting from capital availability to credit selection. In a market where pricing power is eroding, the winners will be lenders that maintain discipline when everyone else is competing away returns. (More)
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DEAL OF THE WEEK
Thoreau Group Nears $12B Acquisition of Ensemble Health Partners
Private equity-backed healthcare services continue to attract significant investor interest, with Thoreau Group reportedly in advanced discussions to acquire Ensemble Health Partners in a transaction valued at approximately $12 billion. If completed, the deal would rank among the largest recent healthcare services buyouts and further highlight investor confidence in revenue cycle management (RCM) platforms.
Ensemble Health Partners provides billing, payments, and reimbursement optimization services to hospitals and health systems across the U.S., positioning itself as a critical infrastructure provider within an increasingly complex healthcare ecosystem. The company is currently backed by Warburg Pincus, Berkshire Partners, and Bon Secours Mercy Health.
The acquisition would mark a major transaction for Matt Holt’s Thoreau Group, an investment platform focused on healthcare and related services and supported by Apollo Global Management. The potential deal underscores the continued attractiveness of scaled healthcare outsourcing businesses, where recurring revenue, mission-critical services, and growing provider demand continue to drive premium valuations. (More)
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