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Private Credit 

Sami Vukelj

Shubham Saharan

There are a few ways to build a business in private credit in today’s world. You could time travel a decade back and set up shop when the barriers to entry were lower, or, if you’re a large institution, you can buy an existing player. Also — there is the third option of hiring a whole team from a rival firm.

The newly formed Corinthia Global Management, which is backed by Nomura, took the third option this week in hiring more than 20 employees from Barings. This included Barings BDC president Ian Fowler.

It comes amid a broader reorganization at the bank as it seeks to make a bigger splash in the private credit market. Beyond the Barings-Corinthia workforce transfer, the bank also announced the establishment of Nomura Capital Management, a subsidiary that integrates the company’s private and public credit offerings in the US.

Robert Stark has stepped in to serve as CEO of NCM. In an interview with 9fin, Stark said that asset-based lending and real estate are among the areas that they will be looking into for further growth opportunities.

“We are looking forward to grow from here, both organically and inorganically.”

Perhaps we’ll see some more smaller shops get scooped up in the coming months, not only by larger private credit firms but also by banks. And if outright acquisitions don’t happen, talent transfers like the one seen this week appear to be on the table.

All of the headlines about private credit’s success in the past year seem to have some truth to them, as pension funds have gotten wind and started upping their allocations in big ways.

While higher allocations are unambiguously positive for direct lenders, there is an increased scrutiny that comes with the territory of being more popular. It’s why the way private credit firms mark their book, which has always been a thorny issue, is receiving greater attention.

But as 9fin explored here, there is always going to be a degree of subjectivity in how individual lenders mark the same asset. Because these assets don’t trade, the number comes down to an assessment made by the lender and the third-party valuation firm they contract to make an assessment.

Though it isn’t just the case of lenders marking their own homework. As Brian Garfield, head of US portfolio valuations at Lincoln International, told 9fin, valuation is a process that is “not taken lightly” by parties involved, as it has to pass audits and stand up to the pressure of any regulatory scrutiny. The number has to be believable.

Yet without the counteracting force of a seller pushing for a fair price, there is indeed space for a degree of creativity.

“It’s far more of an art than a science,” said a senior executive at a private equity firm. “You get big reports with all the calculations, but it’s so easy to manipulate that type of stuff. You can just tweak a couple of numbers in the model and put your thumb on the scale, within reason.”

And as the source continues to note, there is a degree of embellishing the marks. “Everybody does it,” the executive said.

With today’s market growing rapidly, there are more analysts, regulators, and investors paying attention to the industry. Any wild embellishments are not going to fly under the radar anymore.

Private credit is very much ‘in,’ and private prisons are (at least in terms of optics) ‘out’ — but there still seems to be scope for an unlikely collaboration. Prison phone call provider ViaPath Technologies is exploring options for addressing upcoming debt maturities, which could involve tapping direct lenders, 9fin reported yesterday.

The company’s PE sponsor is American Securities, which acquired ViaPath all the way back in 2011, when one of the most popular songs of the year was “Party Rock Anthem” and the Green Bay Packers won the Super Bowl.

Now as almost thirteen years have passed, things seem to have hardly changed, as there has been no sale (despite an attempt by the PE firm) and Aaron Rodgers still plays in green, albeit a different shade (though no Super Bowl rings in the meantime).

This is a bit longer than the usual tenure that a portfolio company gets on a sponsor’s roster, but they are not the only borrowers in the prison sector that we’ve seen in the market. Some have done well, such as prison operator CoreCivic, which successfully returned to bond markets after a three-year hiatus earlier this month.

Others, however, have not done so well in light of shifting ESG narratives and an aversion to prison-related financings. Prison communications company, Aventiv, for example, had to ask lenders for a maturity extensionin December after struggling with refinancing efforts earlier in the year. An ominous sign for ViaPath, maybe?

So that famed certainty of execution direct lenders market themselves on could come in handy, if the company finds itself tangled up with the compliance departments of banks and investors and then ultimately shunned in its bid to refinance its debt.

The company has a $920m first-lien term loan due November 2025 and a $475m second-lien term loan due a year later, so it’s an opportunity for a direct lender to deploy a hefty chunk of change.

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