Private Credit Finance: Growth Trends, Structuring Considerations, and Certain Key Terms and Protections

Description

Historically a means for providing junior debt or financing for smaller or more challenging deals, the private credit market has expanded dramatically since the turn of the century and now covers an array of strategies that span the capital structure and types of borrowers. Private credit financing offers investors attractive yields and downside protection, and, unlike many traditional bank lending arrangements, it provides flexible, relationship-based financing at a time of growing liquidity constraints. Private credit is a "big tent" that covers financing ranging from senior secured debt to junior unsecured credit for funding new building construction, to loans against specialized assets or contractual revenue streams, to distressed situations.

Private credit instruments have traditionally incorporated "tighter" terms and enhanced downside protections in comparison to the credit documentation for, say, broadly syndicated loans. While this remains the case in smaller and medium-sized private credit financings, notable signs of convergence as between large private credit financings and broadly syndicated loans have been growing over recent years (although a number of critical differences remain). Examples of typical key terms and downside protections include financial maintenance covenants, approach to EBITDA addbacks and covenant carveouts, the inclusion of J Crew blockers and other liability management restrictive measures, and events of default.

Listen as our authoritative panel of experts discusses different types of private credit financing, pros and cons associated with such financing, and certain key terms and lender protections in private credit documentation.