It's the golden age of private credit. Private credit, synonymous with direct lending, refers to debt financing and loans provided by non-bank institutions. This can include private credit funds, asset managers, and other non-bank investing arms. These loans are typically made to middle market or lower-middle-market companies that don't have access to traditional leveraged loan and high yield markets. However, as of late, private credit has been taking from share from the typical leveraged loan market.
Due to increased regulatory burden on banks, private credit has been a fast-growing asset class. Direct lenders often negotiate financing solutions directly with borrowers and private equity sponsors.
These loans are typically unitranche financing that is provided directly to companies at a floating rate. These are typically first lien debt structures. Additionally, there is mezzanine financing, which is typically 2nd lien or subordinated debt. Some direct lenders also provided preferred equity and common equity solutions. Firms that can provide financing across the capital structure are known as "one-stop shops", providing a "one-stop solution".
Large private credit shops can take down hundreds of millions of paper and make the process of a sponsor buying the company significantly easier, with faster execution and better terms. Generally, there are stronger protections for lenders and better covenants than loans negotiated by the leveraged loan market.
Most direct lenders provide unitranche financing. Unitranche debt is the combination of senior and unsecured debt into one loan package. Additionally, a significant chunk of Direct Lenders may operate a Business Development Corporation (BDC), a closed-end fund that offers high dividend yields and some capital appreciation to investors. BDCs must report on a quarterly basis – so if you're interviewing with a public BDC (some are private) you can always see their positions and see earnings notes and commentary.
Private Credit investors assess the creditworthiness of the borrower and what the appropriate risk is through doing fundamental analysis, analyzing and estimating historical and future financial performance, what collateral the company has in an event of default, and the feasibility of their debt being repaid by the end of the maturity period.
Notable direct lenders include Ares, Apollo, Blue Owl, Blackstone, Carlyle, Golub, and HPS.
Large Private Credit Firms
Large private credit firms include Ares, Antares, Apollo, KKR, HPS, Golub, Blue Owl, and Blackstone.
The industry has been favoring asset gatherers, with private credit managers trying to focus on several different types of alternative asset strategies. This includes investment grade, real estate, and other private asset oriented strategies.
There are several different lower middle market and middle market private credit firms as well. For a full list of NYC based private credit firms you can view here: NYC Credit Shops
Typical Career Path in Private Credit
The typical career path in private credit begins at the analyst and associate level, with a lot of private credit firms electing to hire at the Analyst level (Antares, MGG). However, a bulk of private credit firms hire at the Associate level, going after Investment Bankers who didn't recruit successfully for PE and for Corporate Bankers. There's a leaning towards leveraged finance professionals in private credit recruiting.
Associates will spend 2-3 years in that seat, before being promoted to a Senior Associate or Assistant Vice President position. Over time, individuals progress to the VP and Principal/Director level, with enhanced responsibilities on deal flow, negotiations, structure, and syndications as they get more senior. Managing Directors and Partners make investment decisions and lead the firm with origination and investor relations.
Hours in Private Credit
Within Buyside Hub, we've measured in detail the typical amount of hours in private credit through hundreds of compensation datapoints. Don't be surprised if some private credit companies have brutal hours. This will be matched with very high pay, but there will be some midnight nights at some shops. You are tied to the demands and whims of Private Equity sponsors who have fast paced, and sometimes unreasonable deadlines.
You are also a commodity business trying to provide financing. However, some places are definitely <50 hours/week so there are various lifestyle differences. For industry analytics, with details on the average and median hours that private credit investors work, please view here: Buyside Hub Analytics
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