private-credit-middle-market

name	private-credit-middle-market
version	1.5.0
last_modified	2026-03-22
description	This skill applies when evaluating direct lending, unitranche, delayed-draw, sponsor-backed, or non-sponsor middle market private credit opportunities. It focuses on timeless underwriting principles: borrower quality, earnings durability, structure, documentation, lender control, amendment risk, and post-close monitoring. Use root references for current pricing and performance benchmarks, and use the local BDC reference when vehicle-specific private credit constraints matter.
category	private-credit
related_skills	["credit-modeling-and-valuation","debt-structure-covenants","due-diligence-and-assessment","industry-sector-analysis","portfolio-investment-process","credit-surveillance-monitoring"]
disambiguation	Prefer this skill when the context is direct lending, unitranche, or middle market private credit underwriting. For broadly syndicated loan analysis or high-yield bonds, use credit-modeling-and-valuation. For covenant document review applicable to both BSL and private credit, use debt-structure-covenants. For BDC regulatory constraints in private credit contexts, also read `references/bdc-regulatory.md`.
triggers	["private credit","direct lending","middle market lending","unitranche","sponsor-backed lending","non-sponsor lending","delayed draw term loan","amendment and waiver","private credit underwriting","BDC private credit"]

Private Credit & Middle Market Lending

Private credit underwriting is relationship-driven, structure-sensitive, and documentation-heavy: start with the borrower's durable cash generation and ownership model, then test whether the lender's control package is strong enough to intervene before value leaks away.

Core Workflow

1. Frame the borrower and ownership model: Determine whether the credit is sponsor-backed or non-sponsored, identify the business model, and isolate the underwriting path that really drives repayment.
2. Normalize earnings and cash conversion: Scrub EBITDA, capex, working capital, customer concentration, and recurring cash obligations before using any leverage or coverage metric.
3. Map the capital structure and facility design: Understand where the lender sits, whether the structure includes unitranche or delayed-draw components, and which features change downside control.
4. Underwrite documentation and lender protections: Focus on covenants, EBITDA definitions, baskets, amendment thresholds, information rights, and collateral leakage paths.
5. Assess ownership behavior: Underwrite sponsor support, governance quality, and amendment behavior for sponsor-backed deals; underwrite key-person, reporting, and governance substitution for non-sponsored deals.
6. Stress the amendment path, not just the base case: Ask how the credit behaves if EBITDA misses plan, rates stay high, acquisitions slip, or the borrower requests covenant relief.
7. Translate underwriting into portfolio and monitoring terms: Size the position, identify thesis-kill triggers, and define what must be tracked post-close.

Reference Map

Read the most relevant reference for the specific question rather than loading the full library.

Core Underwriting

• references/private-credit-underwriting-foundations.md - Private credit model, middle market borrower context, and core underwriting lens.
• references/unitranche-mechanics.md - FOLO structure, AAL mechanics, and unitranche-specific risks.
• references/delayed-draw-structures.md - DDTL, accordion, revolver, and commitment-structure analysis.

Analytical Deep Dives

• references/sponsor-vs-non-sponsor-underwriting.md - Governance, diligence, covenant, and monitoring differences by ownership model.
• references/private-credit-documentation.md - Covenant packages, EBITDA definition risk, lender control rights, and documentation review.
• references/amendment-waiver-framework.md - Amendment, waiver, forbearance, and surveillance implications.
• references/pik-mechanics-analysis.md - PIK structure, leverage drift, coverage distortion, and return implications.
• references/post-close-monitoring-framework.md - Private credit monitoring bridge into surveillance and escalation.
• references/bdc-regulatory.md - BDC regulatory framework plus the numeric thresholds that matter when private credit is held in or compared with a BDC.

Tools and Examples

• references/private-credit-underwriting-checklist.md - Compact diligence and IC checklist for new private credit investments.
• examples/worked-unitranche-case-study.md - Illustrative end-to-end unitranche example.

Output Guidance

When asked about a private credit opportunity, produce:

1. Deal framing: Borrower, owner, facility structure, use of proceeds, and why this structure exists.
2. Core underwriting view: Earnings durability, cash conversion, leverage tolerance, collateral quality, and downside control.
3. Documentation view: Maintenance covenants, EBITDA definition quality, baskets, amendment rights, and lender information rights.
4. Structure view: Unitranche, DDTL, PIK, guarantee, or sponsor-support mechanics that matter to recovery.
5. Benchmarking: Use root references for current spreads, fees, returns, and recovery assumptions; use references/bdc-regulatory.md for BDC-specific thresholds when relevant.
6. Risk summary: Key risks, mitigants, and what would cause the credit to require amendment, heightened monitoring, or re-underwriting.
7. Monitoring handoff: Define the post-close metrics and triggers that should feed credit-surveillance-monitoring.
8. Source citations: Cite the supporting sources used throughout. When a stable direct URL exists, include it inline with the citation and keep any page, slide, filing-date, report-date, or access-date detail in the same citation.

Scope Guardrails

• Keep skill-level references focused on durable underwriting mechanics, not current market snapshots.
• Use references/private-credit-performance.md for current returns, loss rates, and portfolio metrics.
• Use references/typical-deal-parameters.md for current pricing, fees, leverage, and call-protection norms.
• Use references/bdc-regulatory.md for BDC-specific regulatory and numeric thresholds rather than restating them elsewhere.
• Use due-diligence-and-assessment for ESG-specific diligence and broader sponsor or management work when that becomes the primary question.
• Use debt-structure-covenants when the issue is primarily split-lien intercreditor design, lien subordination, or documentation leakage outside the private-credit-specific lens here.
• Use portfolio-investment-process when the question is mainly portfolio allocation, concentration, or mandate fit rather than single-name underwriting.

Limitations

• Private credit marks may lag realizable secondary value; compare manager marks to public credit analogs where possible.
• Documentation strength only matters if lenders are willing to enforce it; relationship orientation can weaken theoretical protections.
• Sponsor support can improve outcomes, but sponsor behavior is path-dependent and should not be treated as hard credit enhancement.
• Non-sponsored deals may have tighter documents but weaker information systems and deeper key-person dependence.
• For broader framework limits, consult skills/credit-memo-generator/references/analytical-limitations.md.

Data Quality

• When data is incomplete or unavailable, consult skills/credit-memo-generator/references/incomplete-data-guidance.md and disclose the gap explicitly.
• When quoting market data, benchmark spreads, performance, or vehicle constraints, cite the root reference used and check its freshness metadata.
• When discussing current market conditions, read references/market-benchmarks.md alongside the relevant private credit root references.

Examples

• examples/worked-unitranche-case-study.md - Illustrative unitranche case showing EBITDA normalization, FOLO structure review, covenant analysis, and monitoring translation.