With the rise of private debt as an asset class, especially for institutionnal investors, I am call to find a valuation model to price private debt for the firm I'm currently working for. Especially finding quantitative or even qualitative inputs that affect the price.
I first started with simply discounting the cash flow of each debt contract that we have in our private debt portfolio. I separate between three categories, US company with fixe rate, Canada's company with fixe rate and floating rate(US and Canada all in an automatic way). The yields I use for discounting CF are the USD corporate, CAD corporate from Bloomberg terminal and I do interpolate for the credit score I don't have. That is for those with the fixed rate. For some I arrive very close (under 1%) but for other it doesn't makes any sens with over 10% away. It is to mention that I did it first for the issuance date, observe the initial credit spread and add it at the valuation date for the reference yield with the specific credit score.
For the floating rates, I substract the USD swap Curve and CAD swap curve from the corresponding yield and add it to the corresponding floating rate(LIBOR 3M by example).
I'm really at the beginning of the project, so if you have any valuation Model for private debt or any tips where I can head to, that will be appreciate. Any ressources or books would be good to. The main goal of my project, is not to find the exact price for every debt contract, which is basically impossible due to the heterogeneity of this market. But to find the main characteristics, from covenants by exemples that drive the prices of various private debts, more for a governance goal.
The first things I observed that influence the price I have are, the duration, the credit score, the time until maturity and callable bond, but it is more like an intuitively remark than a mathematically one. Something interesting to, is the fact that for a lot of debt contracts, if I change the credit score for 1 or 2 notch higher, I arrive a lot closer to the price (under 1%).
Thank you in advance for any help on the wild subject of fixed income and private debt.