Banks are quietly rewriting the rules of syndicated lending—and the shift is far more dramatic than most borrowers realize. In a market dominated by private credit’s flexibility, major banks are now adding private-credit-style features like PIK toggles and delayed draws to multibillion-dollar deals just to keep up. The result: a fast-moving structural arms race that could reshape risk, pricing, and where middle-market companies turn for capital. Here’s what this means for lenders, borrowers and the future of syndicated finance.
Driven by rising competition with direct lenders, banks are layering payment-in-kind options and delayed draw features into major syndicated deals such as the $6.5 billion Skechers syndicated loan led by JPMorgan (NYSE: JPM). They are making these moves to better compete with more nimble direct lenders.
This shift reflects growing pressures on banks to offer more flexible, borrower-friendly terms amid a prolonged surge in private credit’s market share.
“As competition between financing markets increases, broadly syndicated lenders and high yield creditors are vying to offer borrowers the same structural features obtainable with private credit,” a recent Moody’s report on the issue concluded.
Moody’s noted that PIK features, once largely confined to the private credit world, appeared this year in a $6.5 billion syndicated deal backing the buyout of Skechers, as well as in at least one bank-led refinancing of private debt during the summer.
New York buyout shop 3G Capital acquired Skechers U.S.A. in a take-private transaction that valued the world’s third-largest footwear company at $9.4 billion. The syndicated financing was led by JPMorgan and comprised approximately $4 billion in secured debt and $2.5 billion in unsecured notes. The unsecured tranche includes a PIK toggle that 3G can use to defer interest payments by rolling them into the loan.
Bank-arranged loans have traditionally offered lower borrowing costs than direct lending, but they’ve lacked the structural flexibility that private credit funds provide. Moody’s notes that banks could gain ground in the direct lending arena if such borrower-friendly features become more common in broadly syndicated loan markets.
“While we have yet to see a wave of rated PIK financings, PIK features are pressing their face against the glass, so to speak, and are poised to burst through,” Moody’s wrote, adding that broader use of the feature could have implications for credit risk and recovery rates.
Middle-market credit firms say several banks are attempting to woo back customers lost when they tightened lending requirements a few years ago. But they say the banks may have challenges regaining the ground lost, even if they’re offering similar terms as private credit firms.
But while banks are working to increase their flexibility, private credit spreads have compressed, narrowing the pricing differential versus broadly syndicated offerings.
Bank-led syndicated loans are also increasingly adopting private credit’s “delayed draw” feature, which is a hallmark of the direct lending market that allows borrowers to access funds in stages over a set period, rather than receiving the entire loan upfront.
“The use of the delayed draw offer within the BSL structure illustrates how far the market has come to make its proposition more competitive,” law firm White & Case noted in a report on the return of the broadly syndicated loan market.
“While LBO activity remained slow in 2024 and into 2025, the reopening of the BSL market, coupled with ample dry powder, has caused many lenders to compete aggressively for new opportunities, leading to improved deal terms for borrowers,” investment bank Lincoln International said in its latest private markets report.
While financing conditions are improving across markets, some advisers are warning of rising risks as mentions of PIK in company filings, presentations and transcripts have doubled since the start of the pandemic, according to data compiled by Bloomberg.
Moody’s says banks and high-yield lenders are now “vying to offer borrowers the same structural features obtainable with private credit,” risking heightened default rates as more flexible terms become mainstream.
Analysts say there are “bad PIKs,” where a payment-in-kind feature is added to an existing loan after it has closed. Such amendments often signal efforts to stave off default, allowing borrowers to stay current by accruing interest rather than paying it in cash.
“You have to differentiate between PIK that is intentional at the outset versus maybe PIK that is used to reduce default,” Michael Arougheti, chief executive at Ares (NYSE: ARES), said in a recent earnings call.
