Private Credit / PE IC Memo Tips & Examples (PPT)
Hi Guys,
got a three day take-home exercise for a private credit analyst position coming up. I'll get some DD materials and have to create a IC memo in PPT and present it afterwards.
I've researched a bit what goes into an IC memo but was looking for
I) any specific tips regarding IC memos in private credit / debt (presumably higher focus on risk and mitigating factors, less on upside?) and
II) actual examples of IC memos in PPT (I've seen several 30+ pages IC memos and also worked on some during my internship, but I've never seen what an IC presentation in PPT looks like, so an example would be greatly appreciated to see how detailed the slides were - I'm not entirely sure whether the slides should be lean with key bullets only and I'll talk about the rest or whether they should be fairly detailed).
Thanks in advance!
Bump
I'm not at a private credit shop, but I talk with direct lenders/private credit managers on a regular basis. You're right they focus a lot on risk-mitigating factors. Things that are important in the private credit space is the understanding of covenants, terms and documentation as well as justifying those things in relation to the risk the credit manager is taking. (What is the revenue stream diversification and how many business lines does the borrower have? Does the credit agreement have a maximum leverage covenant or a minimum liquidity covenant?) On the whole, to make a compelling investment thesis (to the IC and the LPs), you have to justify why you think the transaction's specific structure mitigates as much downside risk as possible. Knowing how these managers think, you'll get questions about the issues facing that sector and the broader economy. (Think about how the business will function once they are no longer able to pass costs on to their customers, i.e. dealing with higher materials costs and inflation. At the same time, their cost of debt may continue to increase. Rising rates are friendly to credit managers' income statements but not necessarily the borrower's borrowing costs.) The TL;DR version is this: there are lots of different buttons a lender can push to make sure they have solid downside protection and still get good economics/relative risk in return.
Thanks a lot, that was certainly helpful! The case study is a bit special in the way that I don't know anything about the debt amount, structure etc. The entire focus of the case study is on the business, the market and the risk associated. Still, your comments were interesting and will help me in future rounds!
I'm glad they were helpful! Another thing to think about, in case other case studies have a similar ilk, is what would a potential turnaround plan look like. No lender wants to have defaults, but it's best to have a break-the-glass plan. Of course, that will be different from company to company, but that often involves lenders "taking the keys," i.e. they end up owning the company.
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