Private Credit's Rising Role in Leveraged Finance: The Justrite Safety Case Study

In the evolving landscape of leveraged finance, Justrite Safety Group's pivot to private credit and direct lending in 2025 epitomizes a broader structural shift. As traditional bank lending tightens under Basel III regulations and high interest rates, mid-market firms are increasingly turning to non-bank lenders for tailored, flexible financing. Justrite's $700 million refinancing effort—spearheaded by direct lenders like Blackstone—highlights both the opportunities and risks inherent in this transition. For investors, the case study offers critical insights into how private credit is reshaping risk-adjusted returns in a high-yield, low-syndication environment.

The Strategic Shift to Private Credit

Justrite's journey reflects a systemic recalibration in corporate financing. The firm, owned by Audax Private Equity, faced a $570 million loan maturity in June 2026 after its initial attempt to refinance via a $595 million term loan and $100 million delayed-draw facility faltered. Traditional lenders, including Citizens Financial Group, withdrew support, pricing the remaining tranche at four percentage points above SOFR—a stark contrast to the 1-2% spreads typical of syndicated loans. This outcome underscores the limitations of traditional lending in a high-rate environment, where rigid covenants and fixed-rate structures have become liabilities.

Private credit, by contrast, offers a lifeline. Direct lenders provide floating-rate loans with fewer restrictive covenants, aligning better with the liquidity needs of low-margin industrial firms like Justrite. For instance, Justrite's proposed $200 million senior secured term loan from private lenders would adjust with market rates, mitigating refinancing risks. However, this flexibility comes at a cost: spreads of 2-4% over SOFR, compared to 1-2% for syndicated loans, translate to an additional $4 million in annual interest expenses for Justrite.

Implications for Risk-Adjusted Returns

The Justrite case illustrates the dual-edged nature of private credit's rise. On one hand, the asset class has become a cornerstone of leveraged finance, accounting for 45% of activity in 2025. Its appeal lies in customization, speed, and resilience during market stress. For investors, private credit's higher yields—often 5-7% net of fees—compete with traditional high-yield bonds while offering lower correlation to public markets.

Yet, the risks are non-trivial. Covenant-lite structures, which dominate 60% of private credit deals, reduce lenders' ability to monitor borrower performance, increasing default risks during downturns. Justrite's reliance on such terms, coupled with the fact that 40% of private credit borrowers now report negative free cash flow, raises concerns about systemic fragility. Additionally, market concentration—where the top 10 private credit managers control 60% of the space—amplifies the risk of liquidity shocks.

For investors, the key lies in balancing these trade-offs. While private credit's higher spreads can enhance returns, they must be weighed against the elevated credit risk and illiquidity of the asset class. A diversified approach, combining direct lending with specialty finance and opportunistic credit strategies, can mitigate concentration risks.

Investment Advice for the New Normal

Justrite's experience offers actionable lessons for investors navigating the 2025 leveraged finance landscape:

1. Diversify Across Sub-Strategies: Allocate to a mix of direct lending, specialty finance, and opportunistic credit to reduce exposure to covenant-lite risks. In 2025, 18% of limited partners are prioritizing specialty finance, a trend worth following.
2. Prioritize Manager Track Records: Select managers with a history of navigating economic cycles. The top 10 private credit managers control 60% of the market, but not all are equally adept at managing risk.
3. Maintain Liquidity Buffers: Given the illiquidity of private credit, investors should retain sufficient liquidity to withstand market stress. The IMF's warning about 40% of borrowers having negative free cash flow underscores the need for caution.

Conclusion: A Structural Transformation

Justrite Safety's reliance on private credit is not an anomaly but a harbinger of a new era in corporate finance. As traditional banks retreat and interest rates remain elevated, direct lenders are becoming indispensable for mid-market firms. For investors, this shift presents an opportunity to capture higher yields but demands a disciplined approach to risk management. The Justrite case study serves as a cautionary tale and a blueprint: private credit's role in leveraged finance is here to stay, but its rewards are best realized through strategic diversification and rigorous due diligence.

In this high-yield, low-syndication environment, the ability to navigate the nuances of private credit will separate resilient portfolios from fragile ones. As the market evolves, so too must the strategies of those who seek to profit from it.