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Private Credit, Wall Street’s Hottest Trade, Has an Ugly Moment

  • PE-backed company shifts collateral away from private lenders
    PE 支持的公司将抵押品从私人放贷人转移
  • Observers say it’s reminiscent of aggressive loan market moves

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Private Credit Gets Harsh Wake-Up Call About Deal Safety

For years, as private credit exploded into a $1.7 trillion industry, the line from the market’s biggest players was that their deals were, simply put, safer.
多年来,随着私人信贷膨胀成为一个 1.7 万亿美元的行业,市场最大的参与者一直声称,他们的交易简单来说更安全。

Certainly safer than the high-yield bond market, and also safer than the leveraged loan market, where struggling companies could take advantage of weak investor safeguards and team up with hedge funds to aggressively restructure their debt at the expense of existing creditors.

That may still be the case. Deal documents are generally tighter in private credit; loans are financed by smaller “clubs” of lenders with deeper connections to companies and their private equity owners; creditors typically hold the debt to maturity. It all works to mitigate risk for investors, industry advocates say.

And yet, private credit is now having a taste of what happens when things turn ugly.

Big Take 大单

Private Credit’s Rise Is Raising Questions


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永远不要错过任何一集。立即关注《The Big Take》每日播客。

In recent weeks a Vista Equity Partners-backed tech learning platform shifted assets away from its lenders as part of a move to raise $50 million of fresh financing, according to people with knowledge of the situation. For many on Wall Street, the fact that private credit isn’t immune to such controversial maneuvers has been eye-opening.
近几周,一家得到维斯塔股本支持的科技学习平台将资产从贷款人那里转移,作为筹集 5000 万美元新融资的一部分,据知情人士透露。对于华尔街的许多人来说,私人信贷并非免疫于这种有争议的操作,这一事实让人大开眼界。

It’s occurring as higher interest rates are making it more difficult for many companies to service their debt. All the while, lenders flush with cash and dealing with limited investment opportunities are undercutting each other on pricing and offering unusually borrower-friendly terms as they try to put money to work.

Some warn it’s laying the groundwork for further pain down the road. Just last week JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said that he expects problems to emerge in private credit, and warned that “there could be hell to pay.
一些人警告说,这为未来可能出现更多痛苦奠定了基础。就在上周,摩根大通(JPMorgan Chase & Co.)首席执行官杰米·戴蒙(Jamie Dimon)表示,他预计私人信贷领域将出现问题,并警告称“可能会付出惨重代价”。

Private Credit's Rapid Growth

Assets under management expanded significantly in recent years

Source: Preqin 来源:Preqin

Note: 2023 is through September. All other years are through December
注意:2023 年截至 9 月。其他所有年份截至 12 月。

One of the biggest selling points of private credit has been the idea that lenders aren’t providing the same kind of fast and loose loans that Wall Street banks have been involved in over the years. And yet they’re now running into similar problems that have battered leveraged loan investors.

Vista bought Pluralsight Inc., a technology workforce development company, in 2021 for about $3.5 billion. The leveraged buyout was supported by over $1 billion of debt financing by direct lenders.
Vista 于 2021 年以约 35 亿美元收购了技术人才发展公司 Pluralsight Inc。这笔杠杆收购得到了直接放贷人超过 10 亿美元的债务融资支持。

In the years since, borrowing costs have soared, pushing the rate on the company’s debt well into the double digits. Vista recently wrote off the entire equity value of the investment, the people familiar with the situation said.

In an effort to make a $50 million interest payment coming due, the company moved intellectual property into a new subsidiary and used those assets to obtain additional financing from Vista, the people said. The new loan weakens existing lenders’ claims against the IP, they added.
为了支付即将到期的 5000 万美元利息,据称该公司将知识产权转移到一个新的子公司,并利用这些资产从维斯塔获得了额外融资。据称,这笔新贷款削弱了现有贷款人对知识产权的索赔。

Representatives for lenders to Pluralsight including Blue Owl Capital Inc., Ares Management Corp., Oaktree Capital Management and BlackRock Inc. declined to comment, while Goldman Sachs Asset Management, Golub Capital and Benefit Street Partners didn’t respond to requests seeking comment. Vista declined to comment, while a spokesperson for Pluralsight didn’t respond to requests for comment.
代表 Pluralsight 的贷方包括 Blue Owl Capital Inc.、Ares Management Corp.、Oaktree Capital Management 和 BlackRock Inc.的代表拒绝置评,而 Goldman Sachs Asset Management、Golub Capital 和 Benefit Street Partners 未回应要求置评的请求。Vista 拒绝置评,而 Pluralsight 的发言人未回应置评请求。

Read More: Vista-Backed Tech Firm Moves Assets Away From Private Lenders

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The move is reminiscent of one of the earliest and most notorious examples of collateral stripping: the case of J. Crew Group. The company used loopholes in credit documents that allowed it to transfer intellectual property away from existing lenders to secure new financing. Other struggling companies owned by private equity funds — including Neiman Marcus, Petsmart and Envision Healthcare Corp. — have used similar asset moves in recent years to restructure their debt and stave off bankruptcy.
这一举措让人想起了最早和最臭名昭著的抵押剥离案例之一:J. Crew Group 的案例。该公司利用信贷文件中的漏洞,使其能够将知识产权从现有贷款人转移出去,以获取新的融资。私募基金拥有的其他陷入困境的公司,包括 Neiman Marcus、Petsmart 和 Envision Healthcare Corp.,近年来也利用类似的资产转移方式重组债务,避免破产。

Yet there are key differences between Vista’s maneuver and the other deals.

For one, the IP was put into a restricted subsidiary, which is still tied to the covenants of the original loan, the people said. In the most aggressive liability management exercises, the assets are normally dropped into an unrestricted subsidiary, which is not subject to those restrictions and is entirely out of the reach of existing creditors.

Vista also didn’t attempt to pit creditors against each other through a distressed-debt exchange, a tactic that unrestricted subsidiaries have been used to support in the past. Still, some lenders have engaged Centerview Partners and Davis Polk & Wardwell for advice on the situation, while Pluralsight is getting adviceBloomberg Terminal from law firm Kirkland & Ellis and Ducera Partners, the people said.
Vista 也没有试图通过疲弱债务交换将债权人相互对立,这是过去无限制子公司一直在支持的一种策略。尽管如此,一些贷款人已经聘请 Centerview Partners 和 Davis Polk&Wardwell 就这种情况提供建议,而据称 Pluralsight 正在寻求来自 Kirkland&Ellis 律师事务所和 Ducera Partners 的建议。

Centerview declined to comment, while representatives for Davis Polk, Kirkland & Ellis and Ducera didn’t respond to requests seeking comment.
Centerview 拒绝置评,而 Davis Polk、Kirkland & Ellis 和 Ducera 的代表未回应要求置评的请求。

Further debt negotiations between the company and lenders are underway, the people added.

“Some sponsors will be more reluctant than others to do this, but if it avoids a bankruptcy filing or in-court solution, it’s something to consider,” said Nick Caro, a partner at Goodwin’s business law department and a member of the private equity and debt finance groups.
“一些赞助商可能比其他人更不愿意这样做,但如果能避免破产申请或法庭解决方案,这是值得考虑的事情,” Goodwin 商法部门合伙人、私募股权和债务融资团队成员尼克·卡罗说道。

For More on Private Credit:

Banks Funnel Billions More Into Private Credit as Frenzy Spreads

Private Credit’s New Way to Keep Payment-in-Kind Under the Radar

Goldman Racks Up $21 Billion for Its Largest Private Credit Pool
高盛为其最大的私人信贷池筹集了 210 亿美元

Ex-Apollo Partner Sees Cracks Emerging in Private-Credit Boom
Bloomberg Terminal

Why Is Private Credit Booming? How Long Can It Last?: QuickTake

Industry observers expressed concern Vista could shift additional intellectual property away from lenders down the line.
行业观察人士表示担忧,Vista 可能会在未来将更多的知识产权转移给贷款人。

More broadly, amid worries of further stress in private credit, Vista’s move sets a dangerous precedent, said Sheel Patel, a partner in the private credit and special situations group at King & Spalding.

The firm could have injected more cash into Pluralsight via an equity investment. Instead, it chose to do so in exchange for a claim on some of the company’s most valuable assets.
该公司本可以通过股权投资向 Pluralsight 注入更多现金。相反,它选择以公司一些最有价值资产的索赔作为交换。

“People are going to look at this and say, ‘why would I put in equity dollars when I could put in senior debt dollars and juice up my recovery,’” Patel said. “You’re going to see more and more sponsors solving portfolio company liquidity issues this way instead of utilizing equity injections or junior capital.”

For more, subscribe to the Private Credit Weekly

Despite it all, few see a wave of controversial debt transactions sweeping the private credit landscape anytime soon.

Market participants say that governing documents in private credit are still, by-and-large, more protective of lender interests than those in the public markets.

“I don’t think that this is the beginning of a proliferation of lender on lender violence in private credit,” said Joseph Weissglass, a managing director at Configure Partners. “That said, there is increased probability as private credit capital structures get bigger and collateral and organizational structures more complex.”
“我不认为这是私人信贷领域放贷方之间暴力事件增多的开端,” Configure Partners 的董事总经理 Joseph Weissglass 表示。“尽管如此,随着私人信贷资本结构变得更加庞大,抵押品和组织结构变得更加复杂,发生这种可能性的概率也在增加。”

Others say more money chasing after limited deal supply will inevitably lead to controversial outcomes.

Read this next: Flawed Valuations Threaten $1.7 Trillion Private Credit Boom
阅读下一篇文章:存在缺陷的估值威胁着 1.7 万亿美元的私人信贷繁荣。

“We have seen some financing deals in private markets involving riskier capital structures that would have probably struggled to get done in public markets,” said Sachin Khajuria, who runs family office firm Achilles Management and invests across private assets. “Because they are private, if issues do arise they may not be as visible until it’s too late.”
“我们已经看到一些私人市场上涉及更高风险资本结构的融资交易,这些交易在公开市场上可能很难完成,”运营家族办公室公司 Achilles Management 并在私人资产上投资的 Sachin Khajuria 说道。“因为它们是私人的,如果出现问题,可能直到为时已晚才会变得明显。”

Elsewhere in credit markets:

    — With assistance from Paula Seligson and Reshmi Basu
    — 在 Paula Seligson 和 Reshmi Basu 的协助下

    (Updates with ‘Elsewhere in credit markets’ section at bottom of story.)

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