Private Credit Modeling
In direct lending would you typically build models on top of Sponsor or Sell-side models (ie. copy and pasting) or do you actually fill in historical financials from the financial statements?
In direct lending, the approach to modeling can vary depending on the situation and the resources available. Based on the most helpful WSO content:
Using Sponsor or Sell-Side Models: It is common to leverage sponsor or sell-side models as a starting point. This often involves copying and pasting relevant sections, especially if the sponsor or sell-side has already built a detailed model. However, these models are typically adjusted to reflect the credit-specific perspective, such as focusing on debt capacity, leverage ratios, and cash flow available for debt repayment.
Filling in Historical Financials: In some cases, you may need to fill in historical financials directly from the financial statements. This is particularly true if the sponsor or sell-side models are incomplete, inaccurate, or not tailored to the specific needs of the credit analysis. Building from scratch ensures accuracy and allows for a deeper understanding of the company's financials.
Ultimately, the choice depends on the quality of the existing models and the level of customization required for the credit analysis.
Sources: Leveraged Finance – 2017 Update, Private Credit Resources and Prep, Restructuring --> Direct Lending / Private Credit, Seeking advice on Corporate Banking modeling
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