What does a private credit analyst do? A worked example

What does a private credit analyst actually do all day?

The work splits between new loans and the loans the fund already holds. On a new deal, a sponsor or a bank brings an opportunity, and the team decides fast whether to spend time on it. If it does, you build the model, read the company's materials, join management and diligence calls, and write the credit memo the investment committee votes on. On the existing book, you read monthly or quarterly financials from each borrower, check them against the loan's covenants, and flag anything slipping.

It is deal work, like banking, but you are the one holding the risk. That changes the tone. A banker wants the deal to close. You want the deal to close only on terms that protect the fund.

• Screen new opportunities: one page on the business, the sponsor, the size, and the first read on leverage.
• Build the model: a base case, a downside case, and the cash available to pay interest in each.
• Run diligence: management calls, industry reports, customer concentration, the quality of earnings report.
• Write the credit memo and defend it in front of senior people.
• Negotiate terms alongside the deal lead: pricing, covenants, what the company can and cannot do.
• Monitor the portfolio: covenant tests, amendments, and early warning on a borrower in trouble.

How does a credit analyst check whether a loan is safe?

Start with three ratios and one stress test. Here is a worked example with every assumption stated, so you can redo it on paper. A sponsor buys a software services company with 40 million of EBITDA for 10.0x, an enterprise value of 400 million. The fund lends 200 million as a single loan (a unitranche) and the sponsor puts in the other 200 million as equity.

Assumptions: the loan floats at a base rate of 4.0 percent plus a spread of 5.5 percent, so 9.5 percent all in. It amortizes 1 percent a year (2 million). Capex is 6 million a year and cash taxes are 5 million. EBITDA stands in for operating cash flow, and working capital is ignored to keep the math clean.

1. Leverage = debt / EBITDA = 200 / 40 = 5.0x.
2. Loan to value = debt / enterprise value = 200 / 400 = 50 percent. The sponsor's equity absorbs the first half of any loss in value.
3. Interest = 200 x 9.5% = 19.0 million a year. Interest coverage = EBITDA / interest = 40 / 19 = about 2.1x.
4. Fixed charge coverage = (EBITDA - capex - cash taxes) / (interest + amortization) = (40 - 6 - 5) / (19 + 2) = 29 / 21 = about 1.4x.
5. Stress it: EBITDA falls 25 percent to 30 million and taxes fall to 3 million. Leverage becomes 200 / 30 = about 6.7x, interest coverage 30 / 19 = about 1.6x, and fixed charge coverage (30 - 6 - 3) / 21 = 21 / 21 = 1.0x. The company just barely pays its debt service.
6. Stress the rate too: add 2 points to the base rate and interest becomes 23 million. In the downside, interest coverage falls to 30 / 23 = about 1.3x and fixed charges are no longer covered.
7. Check the value cushion: at 8.0x the lower 30 million of EBITDA, the business is worth 240 million. The 200 million loan is still covered, at about 83 percent loan to value.

What does the analyst conclude from those numbers?

The base case is comfortable. The downside is tight but survives, and the value cushion means the fund likely gets its money back even if the sponsor's equity is badly hurt. The weak spot is the combination of a bad year and higher rates. That is what the memo has to address.

The analyst's answer is usually terms, not a yes or no. A maximum leverage covenant set around 6.5x would trip in that downside case, which forces the sponsor to the table early, while there is still value to protect. Another lever is a smaller loan, say 4.5x, which buys more cushion at the cost of a smaller deal. Learning to turn a stress case into a specific term is the skill that separates a credit analyst from someone who can only run the ratios.

Which private credit programs are open right now?

The table below is read from each firm's own careers site. Open means we saw the live posting there, Expected means last cycle's public record says it is coming, and No data yet means neither. Most undergraduate credit programs sit inside large alternative managers that also run private equity, so check the program name: a credit seat and a PE seat at the same firm are usually separate applications.

How is the job different from leveraged finance or private equity?

Leveraged finance at a bank arranges and sells loans and bonds; private credit lends and keeps the loan. So the levfin banker cares about getting the deal placed, and the credit analyst cares about the next five years of the borrower's life. Private equity owns the company and earns from growth and a sale; credit earns interest and its principal back, so its upside is capped and its focus is the downside.

In practice you sit across the table from PE sponsors every day. Many of the best credit analysts understand the sponsor's plan better than the sponsor's own junior team, because they need to know exactly how the equity story could break.

• Levfin: arrange, price, distribute. Short holding period. Judged on fees and execution.
• Private credit: underwrite, hold, monitor. Holds to repayment. Judged on losses avoided and yield earned.
• Private equity: buy, improve, sell. Judged on returns on equity.

How do you prepare for this path as a sophomore?

The path window is Sep to Jan at the alternative managers, so the prep starts the spring and summer before. Interviews test credit analysis, capital structure, and how a lender thinks differently from an owner. You can practice all of that on public companies with public debt.

1. Learn the three statements well enough to find EBITDA, capex, interest, and cash taxes in any 10-K in under ten minutes.
2. Pick a public company with leveraged debt and compute its leverage, interest coverage, and fixed charge coverage from its filings.
3. Run a downside: cut EBITDA by a quarter and see which ratio breaks first. Write two paragraphs on what you would demand as a lender.
4. Read one public credit agreement summary or bond offering summary and list the covenants in plain English.
5. Talk to people in credit and in levfin about how the two jobs differ day to day, and log what they say.

Questions students ask

Is private credit the same as a bank loan?

The product is similar, but the lender is a fund, not a bank. The fund raises money from investors, lends it directly to companies, and holds the loan rather than selling it on.

Do private credit analysts build LBO models?

They build models of the same companies, but the focus is debt service and downside, not the equity return. You should still understand an LBO, because the sponsor's plan is what you are lending against.

What is a unitranche loan?

A single loan that replaces what would otherwise be a senior loan and a junior loan, priced in between. It is common in direct lending because one lender or a small group can provide the whole thing.

What is a covenant?

A promise in the loan agreement. A maintenance covenant, such as a maximum leverage ratio, is tested every quarter and gives the lender a seat at the table if the company's numbers slip.

Can I go into private credit straight from undergrad?

Yes, at the large alternative managers that run undergraduate programs, but seats are few. Many people arrive later from leveraged finance or restructuring in banking.