Private Credit

Commercial Diligence for Private Creditors

Why Private Lenders Need Independent Commercial Diligence

Evaluating the commercial viability of a business and its prospects for meeting its obligations under credit terms is complex. It requires examining risk with an objective view, stress-testing downside scenarios, and learning as much as you can from customers, channels, and competitors in a small window to exercise judgment and seize opportunities without missing factors that later prove the underwriting wrong.

We align with your concerns and, like a laser, zero in on the insights needed to navigate effectively, enabling you to make informed and optimized decisions.

Frustratingly, and with detrimental impact to funds’ returns, Diligence conducted by many consultancies is undertaken with the false premise that the goal is to reduce friction getting through the Investment Committee, or that prospective lenders have little concern, factoring in all the benefits and a portion of the non-obvious risk factors in the pricing.

1. Underwriting Sizable Debt: Proprietary Commercial Diligence Focused on Lender Underwriting Needs, Not Sponsors

When the credit position is sizable and there is too much risk in accepting the sponsors’ representations and relying on decks that come from seemingly credible sources, but point “up and to the right” on all too many consequential factors, our credit clients determine that when they are considering sizable positions running bespoke and proprietary to lender concerns, independent Commercial Due Diligence is warranted. Analyzing key underwriting factors—such as thorough downside scenario assessments—ensures pricing and covenant writing that strike the necessary balance between competitiveness and risk management.

Matters Graph supports big bet decisions, targeting downside risks and upside optionality that you may have, and that are under-addressed in the Sponsor’s work.

2. Covenants Are Being Challenged: You Must Decide Whether To Exercise Rights and Take Other Action With a Watchlist Asset

Then there are the moments when your existing positions become worrisome, as signals indicate the company is at growing risk of violating covenants. There is merit in obtaining an independent view (independent of what the Sponsor is saying and what your Board’s observations and materials disclosures allow you to access).

You need an objective understanding of what is truly at play to protect your holding position during prospective “take the keys” moments, make validated and informed decisions with your investment committee, set the best path with the current sponsor and co-lenders, and evaluate options for the position.

3. Opportunities to Exercise a Convert to Equity Position

Circumstances (including many with positive performance) in which a debt position carries rights to convert, and original Diligence is required to consider a change in the capital stack.

4. Taking the Keys and Needing a Plan

Supporting the varied decisions now that you took the keys – what direction to drive the business, what to believe, what to bring in, what to keep, what to dispose of, and when to exit.

Contact us for case studies and references from existing private debt clients who actively work with us in all the above circumstances.