AI fears, tariff gyrations push US leveraged loan prices to April 2025 lows

Marina Lukatsky, Kenny Tang

Fri, February 27, 2026 at 3:10 AM GMT+9 4 min read

The US leveraged loan market entered the final week of an already volatile February under renewed pressure, as a sharp equity sell-off — driven by fresh concerns around trade policy and the specter of artificial intelligence disrupting the software segment — further dampened risk sentiment.

On Feb. 25, secondary loan prices declined another 17 basis points, pushing the weighted average bid of the Morningstar LSTA US Leveraged Loan Index down to 94.71, its lowest level since April 2025. Month-to-date, the average bid has fallen 103 bps, bringing YTD price declines to 192 bps.

Policy-related volatility in credit markets is likely to persist. Following the Supreme Court’s tariff ruling, the White House says it is exploring alternative mechanisms, including a proposed 15% global tariff framework, and may pursue additional avenues to preserve trade restrictions. The alternative approach would rely on Section 122 of the Trade Act of 1974, which permits the imposition of tariffs of up to 15% for a period of 150 days; any extension beyond that timeframe would require Congressional approval.

Further, the hundreds of billions of dollars in tariffs already collected and subsequently deemed illegal by the Supreme Court ruling would need to be refunded, and how that would be accomplished has yet to be determined. While such a refund would boost liquidity for companies that are tariff-sensitive, the likelihood of refunds anytime soon is uncertain. As well, there are several existing pre-ruling lawsuits by companies such as Costco and Revlon, which have hinged on the recent Supreme Court ruling to recover lost profits from what have been deemed illegal tariffs. FedEx is one of the first major companies to sue days after the ruling.

The US Customs and Border Protection agency announced that it will stop collecting tariffs at the end of the day on Feb. 23, which raises the immediate question: Will tariff-affected companies lower prices, or will prices remain unchanged even with tariffs eliminated (at least until the next levy)? In any case, the end-consumer has paid the price of these tariffs for the past year and is unlikely to see a refund. US companies that operate in tariff-sensitive industries and are global-trade-driven will likely see the greatest impact, though global trade shifts to non-US competitors could have already affected these companies. Many nations have already shifted trade away from the US.

Credit market impact
In our previously published three-part Tariff Impact series (Q2 2025), LCD identified tariff-sensitive industries across the broadly syndicated loan, private credit, and high-yield bond markets, as well as sectors positioned to benefit from the latest tariff ruling. With that said, the ongoing uncertainty around US tariff policy is weighing on the broader transaction ecosystem that underpins M&A, primary loan issuance, refinancings, and sponsor exits. This added layer of risk exacerbates disruption already triggered by the software sector sell-off, which has pushed returns in the broadly syndicated loan market into negative territory.

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Weakness in software and broader risk-off sentiment had already materially constrained new-issue BSL activity in February. In the US, LCD tracked just $7.9 billion of new institutional loan issuance through Feb. 22, excluding refinancings and repricing amendments. Adjusting for typical seasonal slowdowns in August and December, February is on pace to be the second-slowest month since June 2023 — surpassed only by the Liberation Day–driven contraction in April 2025 ($6.2 billion). In addition, five deals were pulled from the market in the last 30 days, including three from the tech sector. Meanwhile, new-issue yields have widened by approximately 25 bps month-to-date, based on the limited cohort of transactions that successfully launched.

In addition, until Alliance Ground International (AGI) launched its $890 million term loan B on Feb. 23 to back Lone Star Funds’ acquisition, the broadly syndicated loan market had gone roughly a month without an LBO financing — a notable lull for sponsor-backed issuance. Continued volatility in US trade policy is likely to deepen business uncertainty, potentially weighing on private equity deployment and the broader M&A pipeline, while adding incremental pressure on issuers already navigating near-term refinancing risk.

This article originally appeared on PitchBook News

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