Private Credit Terms

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September 18, 2023

by a searcher from Pennsylvania State University in Los Angeles, CA, USA

Anyone know what's considered market for private credit terms? Let's assume $7-10M debt to facilitate an acquisition.

10 year amort?
12-16% interest?

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Reply by a searcher
from Georgetown University in São Paulo, State of São Paulo, Brazil
^redacted‌ my own exposure is to emerging markets private credit/structured deals. a lot of good answers above. In my experience, a private credit investor will be more flexible on terms but you will pay a premium for that flexibility. Private credit will think in terms of (1) total return, not just interest rate, as they have their own hurdles to hit; and (2) downside protection + upside potential, so to ^redacted‌'s point you are more likely to see warrants, profit participation, converts/preferreds, make-whole provisions, and potentially some equity-like governance and rights that would make the creditor more active in the business. A more practical example to your question (again, in emerging markets, not the US, and just my experience, not market data) would be target IRR high teens low 20s with min MOIC of 2.0x; maybe a cash interest rate of 10% with 20% profit participation and make-whole to get to the 2.0x after 5 years. sitting right above preferred equity in the capital structure.
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Reply by a searcher
from Pennsylvania State University in Brookhaven, NY 11719, USA
^redacted‌ your estimates are pretty accurate (low to mid teens). ^redacted‌ is pretty spot on. Make sure you're baking in a conservative coverage ratio and expect structure on both sides of the deal. Also note this is significantly more sophisticated capital than a traditional commercial lender pointing you towards SBA, as the terms are generally non-recourse.
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