Good morning
It's Thursday, which in private markets means "basically Friday" for everyone except the associate who just got the comments back on the CIM. Hang in there. Coffee first, then the news.
In today's issue
- 1. A fund asks LPs for more time. LPs ask for more fee.
- 2. Banks want their leveraged loans back
- 3. The quiet rise of the "amend and pretend and extend"
- Explainer: NAV loans, minus the headache
- Meme of the day + quick hits
Wait, what?
1One more year, we promise
A hypothetical mid-market buyout fund is asking its LPs to extend the fund's life so it can sell its last few portfolio companies "at the right price." The LPAC is open to it, on one condition: management fees come down during the extension.
Translation: nobody is arguing about whether the companies are good. They're arguing about who pays for the wait.
Why it matters: When exits are slow, extensions and continuation vehicles become the default tools. Fee concessions during the extra time are turning into standard LP asks, not favors.
2The banks would like a word
An illustrative sponsor refinanced a direct-lending unitranche back into the syndicated loan market to shave its interest cost. The direct lender, who was there when nobody else would pick up the phone, took the prepayment and sent a polite "congrats" email with visible jaw clenching.
Why it matters: Private credit wins on speed and certainty; banks win on price when markets are open. Borrowers will keep bouncing between the two, so call protection and prepayment terms matter more than the headline spread.
3Amend, pretend, extend, repeat
A fictional software borrower got its lenders to push out a maturity, add a PIK component, and loosen a leverage test, all in one amendment. Everyone signed. Nobody called it a restructuring.
Why it matters: Headline default rates can look calm while amendments do the heavy lifting quietly. The tell to watch is how much of a lender's income is PIK instead of cash.
Explainer that doesn't hurt
NAV loans, in four sentences
A regular loan is secured by one company. A NAV loan is secured by the value of a whole fund's portfolio.
Funds use them to return cash to LPs early, prop up a portfolio company, or buy time while waiting for exits.
The upside: flexibility without selling assets at a bad price. The catch: it's leverage on top of leverage, and LPs increasingly want to be asked first.
Group chat version: it's a home equity line of credit, except the house is twelve portfolio companies and your LPs are the neighbors watching from the porch.
Meme of the day
Selling the company to ourselves? Strategic liquidity.
Quick hits
- Fundraising: First-time managers are still finding the road uphill, both ways, in the snow.
- Secondaries: LP portfolio sales keep growing as investors trade "patience" for "liquidity."
- Insurance money: Insurers keep leaning into private credit. Your actuary is now a credit analyst. Be nice to them.
- Covenant-lite: Still lite. Still in fashion. Still somebody's problem in year four.
Word of the day
Dry powder (n.): committed capital that hasn't been invested yet. Also: the thing everyone brags about having and nobody wants to still be holding at the end of the investment period.
That's the powder. Go close something.
— The Dry Powder Daily desk