Private Credit in Manufacturing & Industrial Production: Financing Through Cycles by Constraining Choice

Private credit’s posture toward manufacturing and industrial production in 2024–2025 reflects a sector shaped as much by memory as by current fundamentals. Manufacturing has always attracted credit for the same reason it unsettles it: cash flows are tangible, but cyclicality is unforgiving. Operating leverage, capital intensity, and macro exposure intersect in ways that reward leverage quickly in upcycles and punish it just as quickly when demand softens. Credit committees today are not underwriting current order books. They are underwriting how quickly conditions can deteriorate once those order books thin.

‍

This is why private credit in manufacturing is no longer primarily a pricing discussion. It is a negotiation over constraints. Capital is available, but only where sponsors accept upfront limits on discretion that prior cycles proved were necessary but too often delayed. The sector’s history has been absorbed directly into documentation.

‍

Manufacturing credit has passed through several distinct underwriting regimes, each leaving residue in today’s structures. In the late-2000s and early-2010s, lenders relied heavily on asset backing, assuming machinery, plants, and inventory would provide downside protection. That assumption failed repeatedly once specialized assets met illiquid secondary markets. The mid-2010s introduced covenant-light behavior, driven by global demand strength and sponsor competition. Leverage expanded, amortization softened, and capex assumptions became optimistic. When volumes slowed, lenders discovered that so-called maintenance capex was far less flexible than models suggested. Post-2020, supply chain disruption and pricing power temporarily obscured volatility, allowing leverage to persist longer than fundamentals warranted. Credit committees now treat that period as an anomaly, not a template.

‍

Today’s underwriting reflects accumulated skepticism. Asset value is discounted, not ignored. Refinancing optimism is penalized. Normalized EBITDA is treated as a hypothesis rather than a base case. These lessons are no longer debated. They are embedded.

‍

Modern private credit structures in manufacturing reflect a series of hard-earned adjustments. Maintenance capex is no longer treated as discretionary. Committees assume it is structurally fixed regardless of volume declines, and free cash flow is stress-tested accordingly. Leverage is sized to survive extended demand compression rather than mid-cycle conditions. Amortization has returned quietly through cash sweep mechanics designed to accelerate deleveraging early, a direct response to prior vintages where lenders waited too long to reduce exposure.

‍

Covenants have also changed in intent. Maintenance tests are framed as timing tools rather than tripwires, designed to force early engagement rather than late enforcement. Credit committees value predictability of intervention over theoretical borrower flexibility. Asset collateral remains relevant, but primarily as an operational anchor. Recovery assumptions rely on continuity of production under lender oversight, not liquidation proceeds. Exit cases dependent on reopening syndicated loan or bond markets receive limited credit. Private credit increasingly underwrites itself as the lender of record for longer than sponsors initially expect.

‍

From an advisory perspective, private credit in manufacturing is now about structuring with history in mind. Transactions that clear committee review tend to acknowledge prior failure modes explicitly. Leverage is sized to trough, not normalized, earnings. Early cash capture is accepted in exchange for certainty of execution. Discretionary growth capex is constrained until deleveraging milestones are met. Amendment economics are acknowledged upfront, reflecting an understanding that volatility is inevitable and must be priced, not negotiated in crisis.

‍

Advisors add value by reframing these features not as lender aggression, but as cycle insurance. Constraints imposed early preserve optionality later, when capital markets hesitate and sponsor flexibility is most valuable. Resistance to these structures rarely improves economics. It more often delays execution or results in brittle capital stacks that fail under predictable stress.

‍

Private credit in manufacturing and industrial production is no longer written for expansion phases. It is written for the downturn that has not yet arrived. The strategic choice to use private credit is therefore a choice to accept constraint now in order to preserve survivability later. Sponsors and boards that internalize this logic structure transactions that endure across cycles. Those that resist it often rediscover, late in the process, why concessions were demanded in the first place.

‍

In manufacturing credit today, history has already written the term sheet. Modern private credit simply enforces it earlier.