Private Credit vs. Private Equity

When in doubt, I recommend reading more — I recently came across a solid piece written by one of our PE/Credit Coaches… the best part is when you connect with a Senior OfficeHours VP Coach that has both PE and Credit experience, they can provide good insight into comparing and contrasting two similar yet starkly different roles that most early Associates can’t speak to…

“When companies with traded debt enter distressed territory, CLOs often sell their holdings to distressed investors with significant experience negotiating bankruptcies and other restructurings. However, with so many companies now backed by private credit, a new question has emerged. Since there is no real market for trading private loans, how will private credit firms handle the likely onslaught of distressed companies?

While they may have internal workout capabilities, it is unlikely that these teams are prepared for the number and extent of bankruptcies in the same way that traditional distressed investors might handle the traded secondary market. This means that there will likely be new market mechanisms or trading vehicles that emerge for private credit investors to sell or otherwise unload the risk associated with private credit loans gone bad. It is unclear at this time how this will all unfold, but as always, it will be important for private equity firms to understand these changing dynamics and manage their portfolio companies’ financing with a prudent eye.”