Debt advisory

Private Credit Advisory

Private credit can provide flexible capital for acquisitions, recapitalizations, refinancings, and growth. The value depends on fit, certainty, documentation, and lender behavior rather than leverage alone.

Private credit decisions

Private credit is useful only when the structure fits the business and the transaction

Private credit has become a major financing source for middle-market companies, sponsors, acquirers, and shareholders. It can support transactions that require speed, confidentiality, customized terms, or a lender willing to hold a meaningful position. Palmstone Capital helps clients compare private credit against bank debt, structured capital, and broader debt advisory alternatives before committing to a financing path.

The strongest private credit process starts with the borrower's objective. A company refinancing existing facilities needs a different lender universe than a sponsor financing a platform acquisition, a strategic acquirer funding a purchase, or shareholders considering a dividend recapitalization. Borrowers should connect lender selection to acquisition financing, liquidity needs, covenant tolerance, and future strategic flexibility.

Private credit can be attractive because it may offer certainty, speed, and bespoke terms. It can also be expensive or restrictive if the facility is poorly negotiated. The practical question is not whether private credit is available; it is whether the proposed facility improves the client's position after closing and remains resilient if the company's plan changes. Borrowers making that comparison should also review the broader debt financing path.

Palmstone's capital raising and growth capital report places private credit in the broader 2026 capital market, where borrowers should compare lender selectivity, equity dilution, structured capital, and financing flexibility together.

What private credit providers evaluate

Private credit lenders are not interchangeable. Each lender has different sector views, hold-size capacity, documentation standards, credit committee requirements, and behavior when a borrower faces volatility.

Direct Lending and Unitranche

Private credit providers can often offer speed, hold size, and documentation flexibility that traditional bank syndication may not provide. Unitranche structures can simplify execution by combining senior and junior debt into one facility, but borrowers still need to evaluate pricing, call protection, covenant headroom, lender behavior, and the consequences if performance changes after closing.

Useful where execution certainty matters more than the lowest possible margin.
Often relevant for acquisition financing, recapitalizations, refinancings, and growth plans.
Requires careful comparison of total economics, not only headline leverage.

Sponsor and Non-Sponsor Borrowers

Private credit is not only a sponsor product. Founder-owned companies, management teams, family businesses, and strategic acquirers may also use private credit when banks are too slow, conservative, or inflexible for the transaction. The right lender universe depends on size, sector, cash flow quality, collateral, shareholder objectives, and the purpose of the financing.

Sponsors may prioritize certainty, leverage capacity, and add-on acquisition flexibility.
Founder-owned borrowers may prioritize governance simplicity and relationship quality.
Strategic acquirers may need financing that supports integration and future acquisitions.

Underwriting Focus

Private credit funds underwrite cash-flow durability, downside protection, lender control rights, sponsor or owner support, and the probability that the borrower can manage volatility. They will test revenue concentration, margin stability, working capital requirements, capex needs, forecast credibility, and the quality of management reporting before committing capital.

Recurring or contractual revenue can support stronger lender confidence.
Customer concentration, cyclicality, and weak reporting can reduce debt capacity.
Forecasts need to be specific enough for lenders to test covenant headroom.

Negotiation Priorities

Borrowers should negotiate the complete package: pricing, original issue discount, upfront fees, amortization, maturity, call protection, covenants, baskets, permitted acquisitions, reporting obligations, equity cure rights, and lender consent requirements. A private credit proposal can look attractive early but become restrictive if the documentation does not support the operating plan.

Flexibility provisions may be as important as the quoted interest rate.
Call protection can affect future refinancing or exit options.
Permitted acquisition baskets matter for platform and buy-and-build strategies.

Private credit advisory process

A disciplined process allows borrowers to compare real alternatives, negotiate from evidence, and avoid accepting a facility that solves the immediate transaction but constrains the company later.

01
Clarify the financing purpose, including acquisition funding, refinancing, growth investment, dividend recapitalization, or balance-sheet flexibility.
02
Assess cash flow, debt capacity, covenant headroom, downside resilience, collateral, and the information lenders will need to underwrite the borrower.
03
Segment the lender universe across direct lenders, private credit funds, banks, unitranche providers, mezzanine funds, and specialty finance sources.
04
Prepare lender materials that explain the business, use of proceeds, financial model, diligence support, and transaction timeline clearly.
05
Collect and compare proposals across leverage, pricing, fees, covenants, call protection, flexibility, closing conditions, and lender behavior.
06
Negotiate commitment papers, coordinate diligence, support documentation, and help align financing closing with the broader transaction path.

Key private credit tradeoffs

Borrowers should evaluate private credit in context, including the company's financial profile, shareholder objectives, lender universe, and the transaction timeline.

Private Credit vs Bank Debt

Bank debt can be more efficient for lower-leverage, collateral-backed, and relationship-driven borrowers. Private credit can be stronger where timing, leverage, certainty, documentation flexibility, or acquisition capacity matter. The comparison should include all fees, covenants, approvals, lender hold size, and expected behavior through the life of the facility.

Certainty vs Cost

A higher-cost facility may still be the better answer if it supports a transaction that needs speed and committed capital. Conversely, borrowers should not pay for flexibility they do not need. The right answer depends on the transaction timeline, downside case, lender process, and the value of closing certainty.

Leverage vs Resilience

Maximum debt capacity can create pressure if earnings soften, working capital expands, or acquisition integration takes longer than expected. Borrowers should test covenant headroom and liquidity under downside cases before accepting the highest available leverage indication.

Relationship vs Market Test

An incumbent lender may understand the borrower well, but a broader market test can reveal better flexibility, larger hold size, or improved terms. The process should be broad enough to create options and targeted enough to protect management time and confidentiality.

When This Applies

The company needs acquisition financing, refinancing, growth capital, or recapitalization support with a clear use of proceeds.
Execution certainty, hold size, or documentation flexibility is more important than obtaining the lowest possible margin.
The borrower has enough cash-flow visibility to support lender diligence, covenant analysis, and downside testing.
Shareholders or sponsors need to compare private credit with bank debt, structured capital, or equity alternatives before signing terms.

When This May Not Apply

The company has unstable cash flow, limited reporting quality, or insufficient lender diligence support for a committed facility.
A simple bank refinancing can achieve the same objective at materially lower cost and with acceptable flexibility.
The proposed leverage would reduce resilience under realistic downside cases.
The borrower is using private credit to postpone a strategic decision that should be addressed through capital raising, a sale, or operational preparation.

Evaluating private credit alternatives?

Palmstone Capital can help assess lender appetite, financing structure, covenant flexibility, and closing certainty before a borrower, sponsor, acquirer, or shareholder commits to a private credit facility.

Discuss private credit options