Partnering with top-tier private equity firms also creates alignment with more defensive, growth-oriented sectors. Not coincidentally, these businesses retain the highest purchase price multiples, thereby assuring the most conservative loan-to-value ratios. Finally, these PE sponsors and their operating partners identify secular trends in industries where roll-up strategies can build long-term value. Rather than waiting to […]
For investors, then, conditions remain propitious for private credit. The delivery of yield premiums to liquids, lower risk, and predictable income should continue. With rates still high, leverage should remain in a range. And the more growth-oriented sectors will likely continue to offer the best opportunities for investing and financing… ▶︎ Read June 10th 2024 […]
The media seems to characterize amendments and extensions as financing gimmicks, but they are well-worn features of the leverage finance playbook. As interest coverage cushions are squeezed, giving borrowers room to maneuver enhances their flexibility and resilience. The same theoretically could be said about cov-lite and PIK-toggle features. Sahar panelists spoke at length about how […]
How challenging has it been to predict the next recession? An inverted Treasury yield curve, a reliable forecaster of the past eight consecutive downturns, has been signaling recession for almost two years. So far, the economy has failed to cooperate. While growth is slowing, and inflation along with it, expectations are broad of a solid […]
Some credit managers, in more desperate bids to put idle cash to work, are offering aggressive terms to smaller businesses. Large cap features such as PIK-toggle and cov-lite provide cushions in balance sheets when pro forma interest or fixed charge coverage ratios sink below 1:1. Over the next several weeks, we’ll revisit private credit market […]
We’ve spent the last six weeks outlining best practices top direct lenders employ so portfolios generate the highest returns complemented by the lowest risk. Nevertheless, stuff happens. In fact, we count on stuff happening. You need to be prepared to deal with those eventualities. Workout fatigue is a real thing. It’s tempting to dismiss businesses […]
Our underwriting teams start by analyzing financials from portfolio company CFOs, comparing them to prior year, budget, and downside cases. This is helpful to evaluate management: are they doing what they are saying? PMs get color on material deviations from plan, looking at items such as margin performance due to price increases and cost cuts. […]
This week we continue our series on best practices of top private credit firms with a look at how underwriting teams partner closely with their internal colleagues to ensure the most favorable execution for their sponsor clients and investors. Clear communications with private equity partners at the deal screening stage is essential. Quick and decisive […]
Understanding the connection between business and structural risks is one of the keys to successful credit investing. “Good company, bad balance sheet” is how opportunistic credit managers describe troubled but attractive situations in which to invest. It’s helpful to examine these transactions for clues as to how the borrower got a bad balance sheet to […]
Why is portfolio construction such an important concept for analyzing private credit managers? The answer seems obvious, but it’s more than ensuring defaults and loses are minimized. Less tangible, but a huge issue today, is employee retention. It’s not just having the right team going into an investment that matters. It’s making sure you keep […]