Private Credit Interview Questions
How would you think about (i) attractive pricing for a loan and (ii) how much leverage a company can take on?
For pricing, I would think of doing comps analysis and see what pricing deals were done at for similar companies recently in market. I also saw that private credit would look at MOIC. Are there other metrics/methods to determine acceptable pricing for deals? I come from a credit risk analysis background, so while I am comfortable with analyzing credit risk, I am less familiar with the investing perspective of credit.
Another question I had was around how much leverage a company could take on. I am familiar with large established companies that trade in the high single digit to low double digit EBITDA multiples. In these scenarios, I would typically have maximum leverage 6x depending on the business profile of the borrower. However, I was asked what I would view as maximum leverage for smaller, fast growing companies that trade in the 30+ times EBITDA range. How should I be thinking of maximum leverage in this case? Would it be based off another metric instead of EBITDA (eg. revenue, etc.)?
Gotta leverage those companies up to the tits in debt. Talking 7-8x no questions, no covenants and throw in some portability
7-8x on a company that trades at 30x+ times doesn't seem meaningful though, especially when revenues and EBITDA are growing rapidly. How would you think about maximum leverage in that scenario?
And how would you think about loan pricing? Comps? Hitting a MOIC? Another metric?
Most high growth firms I’ve seen typically don’t have a ton of leverage given the higher potential loss of capital risk. Venture debt is a class on its own though (although I’d be curious to know how those funds are performing atm). One other thing you could call out is the asset base. If you have AR and inventory, someone will lend you money against it on some version of an ABL.
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