I have a private credit case study this week that will consist of a model + looking at a CIM and preparing an IC memo. I'm mostly concerned with the IC memo portion as my background is industry coverage and not credit and I'm not really sure how to decide on the debt structure / pricing. Any insights or even a link to a comprehensive debt private debt primer that tackles structure would be helpful.
Thanks!
Bump
Bump.
Hey there! It sounds like you're gearing up for a big week with your private credit case study. No worries, I've got your back!
When it comes to the IC memo portion, you'll want to focus on a few key areas:
Investment Rationale: Explain why the company exists and how it is diversified. Highlight the company's strong value proposition, strong margins, and revenue visibility.
Debt Structure: You'll need to figure out where you would invest in the cap structure, for example, senior, unitranche, mezz. You're looking at a credit investment meaning your interest and principal is capped, you want to be paid back in full so you have to look for an investment that's recessionary resistant.
Company Analysis: Look for a company with recurring revenue vs project based work, a diverse customer base that is sticky, and a strong value proposition as to why the company exists and how it is diversified.
Financial Analysis: You'll want to look at FCCR, total leverage, debt service, coverage ratio, etc. If you have a built in revolver, be aware of when it is drawn and be able to explain the reasoning behind it. You'll also want to be able to talk about working capital.
As for deciding on the debt structure/pricing, you'll want to look at Debt Comps to determine the coupon rate and covenants.
I hope this helps! If you're still feeling unsure, I'd recommend reading up on a debt primer for more info. Good luck with your case study!
Sources: Private Credit Case Study, Private Credit Resources and Prep
Bump
My firm has a template for initial IC memos (very light informal for first looks) and it generally is 10-15 slides and should cover the following:
beyond those major bases it’s really up to you what is necessary to take a view of the business. For pricing normal direct lending is a race to the bottom so if it’s a big business just do +550 and if it’s a smaller/mid market just price at 650ish
edit: spreads now outdated, larger/safer businesses price at +450-475 and hairy/smaller deals at +600
What would this normally look like in a case study?
There is no time to prepare a lot when you have a few hours, incl. reading into this and doing a model.
Depends. My firm does 2 day take home so you would be expected to do full model with IC paper at the senior analyst/associate level.
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