Are private debt funds getting fucked right now?
As the topic suggests - are PD funds getting screwed now as credits get stressed given they have less structural protection vs senior lenders? Also from anecdotal sources / deals I've heard it seems that even in default cases PD lenders and the market at large have no idea how Long covid will persist, which makes the path of resolution that much tougher to work out. Happy to hear thoughts.
Being in the space myself, very confused as to what you are saying when you say, "are PD funds getting screwed now as credits get stressed given they have less structural protection vs senior lenders"? Private debt firms can be senior lenders, unitranche lenders, and mezz lenders. There is no distinction between a private debt firm and a senior lender unless you are making a distinction between a credit firm and a bank.
Second, private credit firms are not get 'destroyed', depending on their underwriting standards their portfolio may be stressed, but it goes back to how stringent they are in underwriting credits. New deal activity has been at a standstill given M&A is relatively dead so new loan issuance's are at an all time low. Right now, all private credit firms are focusing on portfolio management and subsequent workouts / RX.
At the end of the day its very dependent on your relationship with the Sponsor and how the Sponsor is valuing the portco and whether they care enough to support liquidity or just want to give up the keys. Sponsors have and will continue to provide equity cures through capital injections if they believe the business can get to the other side; however equity firms have often times requested lenders to share the burden through converting cash pay to PIK, covenant holidays, and the like. You will see many more defaults and RX's come Q2