The $5.5 billion financing that a group of direct lenders had secured seemed like a significant victory for the $1.4 trillion private credit market, as they managed to outcompete some of the largest banks in the world.

The direct lenders lost out on a $5.5 billion financing deal after the collapse of Carlyle Group Inc.’s planned purchase of Cotiviti Inc. This added to their woes, as Blackstone Inc. hired banks to refinance $2.6 billion in leveraged loans, months after receiving help from investment firms.

Direct lending is favored for its reliability and swiftness, despite higher costs for borrowers. It gained favor last year when traditional buyout financing markets dried up, causing huge losses for banks. But as the banking sector stabilizes, the leveraged loan market is re-emerging as an attractive option.

The leveraged loan market’s resurgence is a welcome boost for Wall Street banks, which struggled in 2022 to clear debt off their balance sheets. JPMorgan Chase & Co. and a group of lenders are likely to reduce funding costs for Qualtrics International Inc. after receiving a large number of loan orders. In Europe, Barclays Plc led a group of banks that sold €2.9 billion in leveraged loans for the buyout of Royal DSM’s engineering materials business, ending a closely watched M&A financing.

Leveraged finance bankers have seen signs of a junk debt market recovery earlier this year, but the Silicon Valley Bank collapse sent credit risk indicators soaring, forcing bankers to pull back. Direct lending heavyweights anticipated further growth. However, public markets are limited to the safest junk-rated borrowers, and market sentiment is uncertain. Four out of five credit portfolio managers expect a US recession this year, which may present challenges to Wall Street’s tentative return to leveraged lending.