The Credit Edge by Bloomberg Intelligence Silver Point Sees ‘Game Over’ for Some Private Debt Funds When Cycle Turns
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Jun 18, 2025 Michael Gatto, Partner and head of private side businesses at Silverpoint Capital, shares insights on the precarious state of private debt funds in today's market. He warns that when the credit cycle shifts, many funds overly exposed to weak companies could face dire consequences. Gatto discusses Silver Point’s strategies for navigating private credit, emphasizing the importance of due diligence and strong lender-sponsor relationships. The conversation also touches on the evolving landscape of liability management and the complexities of LMA documents in stress investing.
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Avoid Risky Small Company Loans
- Avoid lending to small companies without market share as they risk turning debt into equity-like exposure.
- Scrutinize loan documents closely to identify covenants and asset protections missed by superficial analysis.
Crucial Role of Deep Due Diligence
- Thorough due diligence is crucial in private credit because illiquid investments can't be quickly exited after mistakes.
- Deep knowledge enables better borrower support during downturns and distinguishes strong portfolios when cycles change.
Dichotomy in Due Diligence and Terms
- Certain private credit segments encourage and embrace in-depth due diligence with standard documentation.
- However, vanilla LBO lending pressures terms and documentation down to minimal protections for lenders.