More and more, private equity firms looking to finance big leveraged buyouts are cutting out the Wall Street banks, and borrowing money from each other or from direct lenders.

These loans often come from the credit arms of private equity firms, or from standalone direct lending funds. The appeal of this financing for buyouts is the process is easier and sometimes lenders will offer more debt. But for banks, the transactions threaten one of the most profitable businesses on Wall Street: leveraged finance, where groups of banks arrange loans and junk bonds to fund private equity deals.

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