Private Credit Underwriting
How does PC underwriting stack up vs. PE firms? Given the amount of capital, some of the larger players seem to have very loose underwriting standards.
Have an offer from a MF PC analyst program, but am wondering 1: how different is uni + mezz/2L underwriting from PE and 2: what is the difficulty of switching to MF PE?
Would appreciate the community's perspective on this. If there's anyone who has gone from MF PC analyst to MF PE associate, I would really appreciate your perspective. Would also appreciate the perspective of people in PE who interact with PC firms and think they have a pretty good idea of their underwriting process. Would appreciate color on 1: depth of diligence, 2: modeling exposure, and 3: difficulty of jumping to MF PE.
You seem new to the private investing world, so I'll leave you with this - due diligence ≠ detailed models.
I get that due diligence is not the same as detailed modeling (which is why I asked those questions separately)
You seem to be the type that sends in 150 item question list and call it “doo diligence”.
Complete joke. Much rather work double the hours for 25% more pay and 2500% more prestige. Math checks out.
Pay is the same a lot of time at the junior level. So same pay for wayyy more hours.
"Do these guys do any diligence?" Yes
"How detailed are their models?" Depends on the type of credit fund, type of deal and type of risk. Ranges from vanilla template based to more granular operating models. The utility bill going from 2.45% of revenue to 2.59% in Row 874 will not change the credit thesis. Focusing on revenue by customer or service will absolutely matter.
"Seems like the largest players will write a check no matter what." Blanket statement but OK. Guess what, sponsors are putting junior capital below them in each deal. There is a shit ton of dry powder and people will pick their spots. There are certainly lenders that will back known sponsors in industries they like and probably know well. Yes, the market had been hot and the large guys get paid on volume - so they will pick the parts of the market where they can deploy at scale.
"Those of you in PE, what do you think of PC firms and the level of diligence they do?" Why would a sponsor care if the lender is doing light diligence (maybe they've finance 10 other similar SaaS deals). Ease of execution, prior relationship, terms, documentation, capital for add-on deals matters most. Sponsors aren't jerking off to models being built by 25 year olds. If anything, they want to spend less time answering your questions in DD with the other million things going on.
I'm thinking about a career in PC but have heard conflicting information regarding the quality of analysis / intensity of thought that goes into their underwriting processes which is why I'm asking the above question. I admit I came off a bit rude in my original post.
I didn't say that sponsors should care about how much diligence lenders are doing. I'm trying to get the perspective of someone in PE that works with unitranche lenders to see whether 1: PC would be a good fit intellectually and 2: if I decide I don't want to be in PC, how hard would it be to jump to MF PE as an associate (hence why I am asking about the differential in PC vs. PE underwriting processes).
Edit: Updated original post
Credit is a vast field. Mainstream deals can get repetitive but you wills till learn a lot. Think about it this way someone underwriting L+4 paper won't do the same depth as someone doing more hairy stuff. Ability to pick up modeling skills may also be a function of your seniors. Depending on the group, you can pick it up better at IBs. If you want to do PE, don't start in credit - I think it is relevant experience but maybe going the IB route could be better.
Then you also have the universe of lenders doing hairier deals where more DD is required, especially if a sponsor is not present. These funds don't scale as much and probably do a lower volume of deals. Hard to source in this space.
As you interview in this space, you can ask questions (respectfully) about the typical modeling process, use of templates etc. Also, just ask them to walk you through the underwriting process.
Mainstream PC has gotten crowded. Know people doing software lending that get 2 weeks to do their work - you can't get into all the details there. Pick what is important and execute. There are MM shops that may get 4 weeks on industrials companies; then you may have lower MM non-sponsor lenders that are building models with the CFO - may be good experience early on, but not efficient to deploy capital and you probably make less than the guys sensitizing the sponsor's model. It really varies a lot.
I can't speak to if it will be an intellectual fit for you because I don't know you. Appeal of vanilla PC is high deal volume, WLB was better historically and good promotion path. The latter 2 will change as the asset class becomes more mainstream.
But yes, your experience or comp at Fortress, MGG, Blue Owl, Antares, LBC will vary tremendously across these shops - they are all PC, and all very different at the same time.
Edit - Didn't see your edit to OP before typing this - would have helped if you said that before. What are your other options and what is your deadline? The MF name can help - I don't know if you can go from MF PC to MF PE (been out of junior recruiting for years). You can also ask them the questions in your post but obviously good to hear other people's perspective too. Good luck!
Check recent threads from the last few weeks, I believe there was one discussing the same topic (MF PC -> MF PE viability)
Currently at Antares. People on the underwriting side have jumped to PE either on the underwriting side or the capital markets side. Mostly middle market PE although one person did go to Apollo (you can easily look this up on LinkedIn).
Is Anatares offering market comp now? Lol
Can’t say if we’re market nowadays as I haven’t been doing this that long. We had pay bumps last October. Associates’ bonus ranges were 80-120% of base salaries. I live in Chicago and I brought home 260k this year all in.
did you join antares as an analyst or associate?
Two to apollo*
Which HH firm runs the process for Apollo Credit?
Offer from EB IB or MF PC?
Natus sunt veritatis perferendis pariatur eius qui placeat. Libero dicta suscipit repellat labore. Sapiente voluptatem asperiores provident suscipit culpa quisquam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...