Could someone explain more about the differences in underwriting private credit against those of underwriting a financing package for syndication as is typical LevFin? Do private credit providers get a full DD pack of FDD, CDD etc for QoE and how does the process compare?
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Based on the most helpful WSO content, underwriting in private credit and LevFin (Leveraged Finance) do have some differences.
In private credit, the process is more direct and involves fewer parties. The credit provider negotiates directly with the company or sponsor, and there are usually only one or a few buyers involved in each deal. The process is more akin to private equity style diligence, which means it takes longer. The price is also negotiated, unlike in public markets where the bank usually sets the price.
In LevFin, a bank will syndicate the credit to a broad array of buyers. The time from announcement to closing can vary greatly, from a few hours for a high-yield drive-by issuance to maybe 2 weeks for a not well-known loan issuer.
As for due diligence, in private markets, they do way more PE style diligence so it takes longer. This could potentially involve a full DD pack of FDD, CDD, etc for QoE.
In terms of liquidity, public credit is more liquid as these securities trade, whereas private credits generally don't trade barring some distress or a specific event.
So, in a nutshell, the underwriting process in private credit is more direct, takes longer due to more intensive due diligence, and involves negotiation on price. On the other hand, LevFin underwriting involves syndication to a broad array of buyers, can be quicker, and the price is usually set by the bank.
Sources: Q&A: VP in LO Public Credit, Private Credit / Direct Lending Comp, Q&A: VP in LO Public Credit, Private Credit / Direct Lending Comp, What are the different types of Credit?
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