Animal Spirits Podcast Talk Your Book: The Private Credit Opportunity Set
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Jan 27, 2025 Dive into the dynamic world of private credit and venture debt, where smaller firms offer flexibility amidst traditional banking challenges. Explore the evolving landscape of private credit investments, and discover why public equity still reigns in liquidity and diversification. The discussion also highlights key metrics for advisors navigating this complex market, stressing the importance of transparency in valuations and prudent due diligence. Learn about the unique position of TRIN and the opportunities waiting within lower middle-market deals.
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Private Credit Market Dynamics
- Spreads are tightening in middle and upper-middle market private credit, where large firms compete for the same deals.
- This leads to beta-like returns, making it necessary to explore other areas like the lower middle market for better opportunities.
Debt Sustainability in Lower Middle Market
- Lower middle market companies, with valuations under $1 billion, can handle current debt service.
- Debt service sustainability depends on stable economic conditions and revenue streams.
Assessing Debt Repayment Ability
- Loan-to-value (LTV) is one metric for assessing a company's ability to repay debt, often based on enterprise value.
- For rapidly growing companies, revenue and LTV are considered more than cash flow.