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 […]
Success is a balance of offense and defense. Deploying capital efficiently means sourcing top performing assets – financings to superior corporate borrowers backed by (in sponsor-backed businesses) top-tier private equity firms. Once in the portfolio those companies and their financing structures need to withstand any micro or macro threats. Critical to smart investing is close […]
Success is a balance of offense and defense. Deploying capital efficiently means sourcing top performing assets – financings to superior corporate borrowers backed by (in sponsor-backed businesses) top-tier private equity firms. Once in the portfolio those companies and their financing structures need to withstand any micro or macro threats. Critical to smart investing is close […]
Now that the liquid loan market is opening, albeit with mostly refinancings, larger issuers have more choices. This is actually a good and natural thing. For those companies willing to go through the ratings and syndication processes in the bank market, terms can be competitive. Financing choices now include leading private credit managers who offer […]