Australian leveraged finance in 2025: market trends, structures and term

Demand, price and product: a borrower's market backed by real liquidity

Across recent transactions, Australia/Asia-Pacific bank and fund liquidity has been deep enough to support sizeable underwrites and tight execution timetables. Investment banks have returned to centre stage, arranging and underwriting with confidence, notwithstanding increasingly narrow flex terms focused on core pricing.

On pricing, recent Australian cov-lite loans are consistently landing with margins in the low 4’s (or below) over benchmark for solid credits, with original issue discounts (OIDs) used to fine-tune economics at the fringes. Clearer price discovery is allowing sponsors to run shorter, more competitive processes and driving significant volumes of repricings and recapitalisations

Private credit remains highly competitive and well-capitalised, with sophisticated funds readily placed to weather (and in most cases embrace) greater regulatory scrutiny within their existing governance frameworks.

Unitranche providers are still deploying meaningfully, trading higher headline margin for certainty of funds and bespoke/more flexible structures. The return of fully underwritten Australian TLBs is rebalancing the conversation, with investment banks increasingly prepared to match unitranche on many levels; however, some terms (including payment in kind (PIK) and flexibility on prepayments) remain largely out of reach for TLB products. The middle market also remains heavily serviced with plentiful bank and private credit dry powder seeking to deploy into traditional senior and covenanted unitranche transactions.

Sophisticated sponsors are also expanding price and terms discovery across multiple products and multiple markets, with the more advanced being product-and jurisdiction-agnostic, exploring typical TLB vs. unitranche tracks in Australia/APAC in an arbitrage against direct lending, broadly syndicated loans (BSL) and high yield appetite in the U.S. and Europe. At the same time sponsors are driving further capital efficiency with structured liquidity options, including back-leverage and holdco financing, being driven by strong credit supply and competitive pricing out of APAC.

Springing into action: documentation and covenants

For strong sponsor-led deals, cov-lite is standard, with springing revolving credit facility (RCF) covenants with comfortable headroom, often tested on specified cash drawings (only) above healthy utilisation thresholds and increasingly commonly net of available cash. In line with global terms, the Australian market is mostly treating this as a liquidity tripwire rather than performance policing, with strong sponsors seeking multiple cure mechanics, including higher frequency EBITDA cures (with local pushback on overcure), and net debt, test condition and auto cures.

Additional debt incurrence across Australian TLB and unitranche deals is favouring greater flexibility, combining generous multiple free-and-clear baskets across term and revolver facilities, with ratio-based incremental and side-car capacity. Though, as a reprieve for lenders, bolder sponsor requests such as “no worse than prongs”, dividend-to-debt (AKA “pick your poison”) toggles, and inside maturity baskets so far remain accessible mostly by top global sponsors on global terms. On the other hand, incremental pricing and other terms protection continues to erode in line with global trends, with most favoured nation (MFNs) repeatedly on the hit-list for most sponsors.

EBITDA continues to generate plenty of drafting energy, with revenue-synergies now a common state of play (capped on a negotiated basis). Cost-out and group-initiative pro forma adjustments continue to achieve longer forward periods, though remaining subject to aggregate caps (albeit frequently calculated on post-adjusted EBITDA).

Basket mechanics are increasingly permitting carry-forward (one year/up to 100%, with carry-back less common), whilst “high-watermarking” (greater of) grower baskets remain standard in Australia. Strong sponsors are also seeking to entrench global terms on basket reclassification, stacking, and limited conditionality testing with varying success.

Permitted distribution/restricted payment (RP) capacity remains reasonably measured, with moderate freebies, and growers still more typically crafted as narrower versions of European-style “available amount” constructs (rather than U.S. style consolidated net income (CNI) builders), though top sponsors achieve the flexibility of having either.

In other developments, liability management transactions continue to be on most lenders’ radars, though tighter obligor structures and few participants in the Australian market have meant that the worst liability management outcomes remain reserved for other jurisdictions, with the Australian market now approaching a sensible drafting consensus on core J-Crew, Serta and Chewy style protections.

Ring-fenced and ready: excluded jurisdictions and APAC structuring

Regulatory and legal constraints in key markets—including restrictions on upstream guarantees, security and financial assistance—mean that Australian and New Zealand obligors often continue to anchor Aussie/APAC security packages, with a patchwork of excluded jurisdictions elsewhere in the region. Tax rules on thin capitalisation and debt deduction creation, and the staged arrival of Pillar Two are elevating this issue and reshaping how obligor groups and security packages are structured across Australia and the wider APAC footprint. This continues to be negotiated on a deal-by-deal basis and typically managed by negotiated guardrails around value build-up and acquisitions, so value doesn’t disproportionately drive covenant compliance/capacity without lenders having commensurate recourse.

Outlook into 2026

Absent any sharp macro shocks, we expect the Australian cov-lite unitranche and TLB market to remain the predominant products for a borrower-led 2026, though meaningful advantage will go to sponsors, investment banks and private credit that can readily test and exploit knowledge and capability across global terms and markets.