Private Capital Investing: The Handbook of Private Debt and Private Equity (Wiley Finance)

literally downloaded the free "sample" of this on the Kindle App yesterday. looks basic, w/ a good book title + known publisher to lure you in. looking at the TOC, its basically these primers/PDFs I have, into sections

I could literally data-dump you private capital & direct lending published PDFs from law firms, etc and it would probably be more informative. heres an excerpt on one of them.

The Global Private Credit Market: 2019 Update Dechert LLP

Deal Focus

SMEs and middle-market borrowers continue to make up the core of private credit lending globally, but private credit managers are increasingly providing financing to both smaller and larger borrowers. The ACC-Dechert Survey reported that the average EBITDA of borrowers in the 2018 survey was $44 million, up from $38 million in the 2017 survey. With the increase in the average borrower size came an increasing dispersion of borrowers’ EBITDA as well. In 2017, 39% of private credit managers reported an average borrower EBITDA of between $25 million and $75 million; in 2018 only 32% of respondents reported an average borrower size inside this range. Instead, private credit managers are increasingly lending to smaller companies: those with less than $25 million EBITDA accounted for 41% of overall borrowing activity, while larger companies, with over $100 million EBITDA, accounted for 17%.

While the total volume of capital allocated to private credit strategies has increased, the distribution of capital across different subsets of the private credit market has remained broadly consistent. Most of the asset allocation of private credit managers remains with leveraged lending, but many funds are diversifying (and some are specialising) in infrastructure, real estate, trade, asset-backed, distressed and other transactions.

Private credit investors continue to show a preference for higher positions in the capital structure, with more than 40% of capital allocated to senior secured debt strategies, according to the ACCDechert survey. This preference likely stems from the many investors still placing greater value on a loan’s security than on its potential to make an outsized return; the stage of the credit cycle in which the economy finds itself is likely also a significant factor. Although senior secured financing is the most prevalent structure in private credit, financings are also frequently structured as unitranche, second lien and other junior financing investments.

The structure, terms, syndication and overall documentation of private credit transactions is indistinguishable from that used for similar mainstream banking deals. The documents usually contain all the provisions to support a wide bank syndication regardless of whether the loan is intended to be closely held or not.

Themes and Trends Going Forward

As the private credit market expands and matures globally, we see certain trends and themes developing that will shape the market going forward in 2019 and beyond.

Increased Credit Analysis, Diligence and Process

The end of 2018 saw a prevailing sentiment emerge among investors that weakening economic conditions, fallout from the ongoing trade war, stock market volatility and uncertainty over the length and frequency of government shutdowns have spelled the end of a long credit-cycle boom. It remains to be seen whether the Federal Reserve’s recent shift in rate policy will allay investors’ fears that a combination of these factors and rising interest rates means that workouts of a material portion of funded private debt are inevitable. What is clear from the data on borrower fees, interest rates and financial covenants is that, for the time being, private credit remains a borrower’s market. Almost four times as many respondents in the ACC-Dechert Survey reported that arrangement fees are decreasing rather than increasing, while twice as many respondents reported a weakening of financial-covenant protection than did a strengthening.

Financial-covenant headroom of 25% or more was typical for more than half of their deals. The ACC-Dechert Survey picture on loan coupons was more nuanced, with a plurality of respondents reporting higher rates over the last year. However, a third of respondents reported that coupons had lowered over the last year and over 20% reported no change.

Factors driving these borrower-friendly terms include increased deal competition and developing deal terms in upper-market deals trickling down to the middle market. Though it started as a more bespoke approach to lending, private credit lending in the middle market is increasingly becoming precedent-driven, which is further advancing the general relaxing of covenants and defaults. At the same time, private credit managers highlight that the ability to identify and analyse viable credit opportunities is a differentiator that can allow them to relax certain deal terms without sacrificing overall robustness in lending practices.

In that vein, private credit managers have been responding both to general concerns about the future economy and the loosening of deal terms with an increased emphasis on credit analysis and diligence. Covenants have never been a substitute for market research and credit analysis, though stricter covenants have always allowed more wiggle room for setting the model correctly. With that wiggle room shrinking, private credit managers that have robust market-researchand- analysis and credit-risk-assessment teams will likely have a performance advantage over those who do not.

Another advantage will come to those managers who are building teams with knowledge of default scenarios and restructuring. The ability to navigate workout scenarios is becoming an increasingly relevant consideration for managers and one they use to differentiate themselves from their competitors. The private credit industry was launched on the heels of the financial crisis and ensuing recession, but has never been through a systemic downturn of its own. Now that private credit funds account for the majority of middle-market deal volume, an increase in defaults and adverse changes in economic conditions will squarely affect the industry. The development of workout expertise will help cushion those blows.

Another reason for encouragement in the event of an economic downturn is the abundance of dry powder available to private credit funds to provide liquidity to be flexible in responding to workout situations. Respondents to the ACC-Dechert Survey report dry powder levels on average as a third of AUM. With that much available liquidity, there is little reason to fear that doom and gloom will arrive quickly. But there is also no reason for good money to follow bad, so increasing credit controls and bolstering workout and restructuring expertise internally or with outside advisors is a prudent strategy for private credit managers generally. Building workout expertise is also key to fund raising going forward, as having strong and clear credit controls together with a team that can deal with distressed situations will help mitigate concerns of investors who keep hearing that the music will have to stop