Origination Process at LMM/MM Private Credit Shops

Based on the most helpful WSO content, here's a breakdown of how origination works at LMM/MM private credit shops, particularly for non-banked deals:

1. Deal Flow Sources: Sponsor vs. Non-Sponsor

• Sponsor Relationships: Many private credit shops rely heavily on sponsor relationships for deal flow, especially for banked deals. These sponsors often run competitive processes, which can make these deals more challenging to win.
• Non-Sponsor Origination: Some shops, particularly those with a "purist" or "old school" approach, focus on non-sponsor or independent sponsor deals. These deals are often sourced directly and require more creative structuring and due diligence since there’s no sponsor to offload the workflow.

2. Sourcing for Direct Lending

• Cold Outreach: Direct lenders often engage in proactive outreach to companies within their target industries or geographies.
• Intermediaries: Debt advisors and brokers play a significant role in introducing deals, especially in the LMM/MM space.
• Referrals: Other lenders, who pass on deals outside their mandate or risk appetite, can be a valuable source of deal flow.
• Management Meetings: Direct lenders may also attend management meetings and industry events to build relationships and identify opportunities.

3. Time Allocation: Origination vs. Underwriting

• Associate/VP Roles: At many shops, associates and VPs spend the majority of their time underwriting deals brought in by sponsors or intermediaries. However, they may also participate in origination efforts, such as attending meetings or conducting outreach.
• Business Development Teams: Some firms have dedicated business development teams focused solely on sourcing deals, allowing the underwriting team to concentrate on execution.

4. Shops Focusing on Non-Sponsor Deals

• Certain credit shops explicitly avoid sponsor-backed deals and instead focus on non-sponsored or independent sponsor transactions. These shops often prefer to retain seniority in the capital stack and structure deals creatively to protect their capital and achieve attractive risk-adjusted returns.

5. Banked vs. Non-Banked Deals

• Banked Deals: These are typically more competitive due to broader marketing by intermediaries and the involvement of multiple lenders.
• Non-Banked Deals: These require more effort to source but can offer better terms and less competition. They also allow lenders to build stronger relationships with borrowers and structure deals more flexibly.

If you're transitioning from BB IB, understanding the nuances of non-sponsor origination and the creative structuring involved in non-banked deals will be crucial for success in private credit.

Sources: https://www.wallstreetoasis.com/forum/private-equity/qa-non-target-top-bucket-ssg-private-creditdirect-lending?customgpt=1, Q&A: Non-target → Top Bucket SSG Private Credit/Direct Lending, Renewable Energy PE Overview, Undergraduate Opportunities - Credit Funds, How do top credit shops compare to MM/LMM buyout?