Private Debt Masterclass (In-House)

Private Debt in Context

• What is private debt?
• Historical perspective and the emergence of a distinct asset class
• Who are the participants in the private debt market?
  • pension plans
  • foundations
  • insurance companies
  • fund of funds
  • endowments
  • asset managers
  • family offices
  • wealth managers
  • government agencies
  • others
• Why private debt? Issues include
  • 2008 credit crisis and bank regulation
  • quantitative easing
  • track record
  • diversification appeal
  • defensive nature of private debt
  • leveraged lending guidance
  • developments in alternative assets
  • pressure on PE management fees
  • not all private debt is illiquid

Structuring Issues for Private Debt Funds

• Private limited partners and general partners
• Partnership structuring issues
• General partner’s key activities
• Key operational issues for private debt funds
• Remuneration and compensation
  • management fees
  • carried interest
• Differences from private equity structures
  • investment allocation
  • hybrid features
  • leverage and fees

Private Debt Investment Process

• Programme design
  • strategic asset allocation process
  • portfolio construction and investment platform structuring
  • cash flow planning
• Implementation
  • fund sourcing
  • due diligence
• Ongoing tasks
  • monitoring
  • reporting

Classifying Private Debt

• Senior
  • infrastructure
  • senior real estate
  • senior direct
  • unitranche
• Junior
  • subordinated real estate
  • syndicated mezzanine
  • mezzanine
  • high yield
• Equity and equity linked
  • private equity co-investments
  • warrants

Private Debt Investment Strategies

• Direct lending
• Mezzanine
• Infrastructure debt
• Venture debt
• Distressed debt
• Credit special situations
• Bridge financing
• Other – e.g. active over all phases of the credit cycle
• Speciality finance

Private Debt Financial Instruments

• Bank loans, first lien
• Second lien
• Unsecured notes
• Subordinated debt
• Preferred shares
• Mezzanine finance
  • debt types of instruments
  • characteristics – PIK etc.
  • equity types of instruments
  • vendor debt

Valuation

• Why valuation is important in private debt
  • governance and capital attraction
  • regulation
• Comparison of private debt and public debt valuation
  • methodologies
  • data availability
• The private debt approach to valuation
  • payoff, timing and risk
  • determining credit spread
  • what affects risk
  • applicable regulations, standards, policies, and guidelines to consider
  • discount rate analysis to determine the cost of debt
  • using the discount rate to determine value
  • valuation challenges
• Guidelines on private equity valuations - International Private Equity and Venture Capital Valuation (IPEV) Guidelines

Governance and ESG

• What is ESG - Environmental, Social and (corporate) Governance
• What are ESG factors
• Why ESG factors are important in private debt
• Key ESG considerations for private debt
  • areas for improvement
  • pressure to implement
  • challenges in implementation

Commercial Applications

• Leveraged Buy Outs – LBOs
  • review of LBO history, importance and rationale
  • LBOs and private debt structuring
  • requirements for LBO success
  • challenges with LBO private debt funding when problems arise, the case of IHeartMedia
• Distressed debt, using a case study example
  • valuing distressed debt and financial modelling
  • developing scenarios for a distressed company, e.g.
  • full recovery outside bankruptcy
  • sale of business based on its enterprise value
  • asset liquidation
  • importance of cash flow analysis and liquidity constraints
  • debt leverage and interest coverage ratios in relation to financial covenants
  • analysing the recovery value of the distressed debt

Development Initiatives

• Impact investing
  • private debt or fixed income instruments are the largest asset class in impact investing
  • why impact investing, including evidence of performance
  • impact investing strategies:
  • direct investment
  • indirect investment via intermediaries
  • different types of financial instrument – mezzanine finance
• Venture debt
  • why venture debt