Private Credit's Rising Power in Leveraged Loan Refinancings

The private credit market is reshaping the landscape of leveraged loan refinancings, offering borrowers greater leverage flexibility and tailored structures that traditional banks increasingly struggle to match. This shift is epitomized by BlackRock’s recent $550 million refinancing of Syndigo, a Chicago-based software platform backed by Summit Partners and TJC. The transaction not only highlights the growing dominance of private credit but also underscores strategic debt arbitrage opportunities for investors navigating a high-interest-rate environment.

Strategic Debt Arbitrage: The Syndigo Case Study

BlackRock’s refinancing of Syndigo’s debt structure—a $375 million first-lien loan maturing in 2027 and a $160 million second-lien loan due in 2028—exemplifies how private credit players are leveraging their structural agility to outcompete traditional lenders. By consolidating Syndigo’s near-term obligations, the refinancing extends maturity profiles and reduces refinancing risk, a critical advantage in a tightening credit market. According to a report by Bloomberg, Syndigo’s leverage ratio as of March 2025 exceeded seven times EBITDA, climbing above nine times when certain software costs are expensed [1]. This level of leverage, while risky, is made feasible by private credit’s ability to offer higher loan-to-value ratios and more flexible covenants than banks, which are often constrained by Basel III capital requirements and risk-weighted asset limitations.

The Syndigo refinancing also reflects a broader trend: private credit funds are increasingly targeting overleveraged borrowers that traditional banks deem too risky. This creates a form of arbitrage, where private credit managers exploit the gap between banks’ risk-averse lending standards and borrowers’ appetite for aggressive leverage. For instance, BlackRock’s package includes participation from Guggenheim Partners and 26North Partners, illustrating how private credit’s fragmented, relationship-driven ecosystem can aggregate capital more efficiently than the rigid hierarchies of bank syndications [1].

Market Dynamics: JPMorgan Data and D/E Trends

JPMorgan’s data further validates the structural shift toward private credit. In Q2 2025, refinancings accounted for 72.8% of small multifamily loan originations, the highest share since 2022, despite persistently elevated interest rates [2]. This surge underscores private credit’s ability to offer competitive pricing and extended maturities, even in a high-rate environment. Meanwhile, the U.S. leveraged loan market has delivered robust returns in 2024, with a total return of 8.41% year-to-date, driven by high coupon income and stable spreads [3]. Analysts project similar performance in 2025, with returns of 7.5–8.0% anticipated as default rates remain projected between 3.25–3.75% [3].

The debt-to-equity (D/E) dynamics of leveraged borrowers are also evolving. Syndigo’s case highlights how private credit’s flexibility allows companies to manage D/E ratios through creative structuring. For example, by expensing certain software costs, Syndigo’s leverage ratio balloons to over nine times EBITDA—a metric that would likely deter traditional banks but is acceptable to private credit investors who prioritize cash flow visibility and asset quality over accounting nuances [1]. This adaptability is a key differentiator, enabling private credit to capitalize on niche opportunities in the credit spectrum.

Why Investors Should Position for Private Credit’s Expansion

For investors, the rise of private credit in leveraged loan refinancings presents a compelling case for allocation. First, private credit’s structural advantages—such as longer investment horizons, bespoke collateral packages, and covenant flexibility—position it to outperform in environments where traditional banks are constrained. Second, the sector’s growth is being fueled by a $1.5 trillion gap in corporate credit demand, as highlighted by JPMorgan’s analysis of leveraged loan market dynamics [3]. Third, the ability to engage in strategic debt arbitrage—by refinancing overleveraged borrowers at higher yields—offers a path to alpha generation in a low-growth macroeconomic backdrop.

However, risks remain. The increasing leverage of private credit portfolios, as seen in Syndigo’s D/E trends, could amplify downside risks if economic conditions deteriorate. Investors must also navigate regulatory scrutiny, as policymakers grow wary of the sector’s rapid expansion and potential systemic implications.

Conclusion

Private credit’s ascent in leveraged loan refinancings is not a fleeting trend but a structural realignment of the credit markets. BlackRock’s Syndigo refinancing, supported by JPMorgan’s data on refinancing volumes and D/E trends, illustrates how private credit is redefining the parameters of leverage, risk, and return. For investors, the lesson is clear: positioning for private credit’s expanding role requires a nuanced understanding of its strategic advantages and the macroeconomic forces driving its growth.

**Source:[1] BlackRock leads $550m private credit refinancing for Summit, [https://pe-insights.com/blackrock-leads-550m-private-credit-refinancing-for-summit-and-tjc-backed-syndigo/][2] Small Multifamily Investment Trends Point to Market Rebound, [https://www.credaily.com/briefs/small-multifamily-investment-trends-point-to-market-rebound/][3] 2025 Investment Outlook – US Senior Loans and CLOs, [https://www.invesco.com/apac/en/institutional/insights/fixed-income/us-senior-loans-outlook.html]