In the business of leveraged finance, your leverage providers are some of your most important partners. At times this can be easy to forget, especially as a junior team member with relatively limited exposure on this front. Furthermore, once the transaction has closed, if all goes well the deal team’s interaction with lenders drops substantially. For so long as the investment is performing, any required ongoing quarterly and / or annual reporting and the payment of interest and principal will most likely be handled by the company’s management team.
In some ways, the relationship between the private equity firm and its lenders mirrors that of the relationship between a patient and doctor who shouts, “I hope I never have to see you in here again,” on the patients way out. If things do start to go astray and the business risks defaulting, however, the relationship intensifies immediately. But in this lesson, we are going to focus on lender engagement prior to close. More precisely, this course will describe typical lender engagement leading up to the transaction, since that is often where the bulk of the work takes place.