- The short version — why private credit is surging
- Where it fits: borrower profiles and use‑cases
- Return stack: pricing, fees, and protections
- Deal structures that work in India
- Risks, red flags, and an operator checklist
The short
- Speed & customisation win mandates. Bilateral terms outpace bank processes.
- Risk lives in concentration + opacity. Illiquidity premia can vanish if underwriting is lax.
- Partnerships with NBFCs scale origination. Local underwriting + global capital works.
- Structures matter as much as pricing. Covenants, security, and cash sweeps drive realised IRR.
Where it fits
1) Mid‑market capex & growth
Borrowers with thin collateral but strong cashflows. Use‑case Term loans + warrants
2) Special situations
Refinancing, promoter buybacks, acquisition bridges. Use‑case Structured credit
3) Real assets & infra
Holdco/Opco structures with annuity cashflows. Use‑case Cash sweeps + DSCR tests
4) Venture + late‑stage
ARR‑backed lines, royalty financing. Use‑case Convertible / revenue‑share
Return stack
| Component | Typical range | Notes |
|---|---|---|
| Cash coupon | 12–18% | Benchmark + spread by rating & collateral |
| Fees (upfront/OID) | 1–3% | Boosts all‑in yield; watch prepayment |
| Equity kicker | 0–5% | Warrants/options in growth cases |
| Security | First/second charge | Realised via escrow, pledge, guarantees |
Reality check: IRR depends more on protections and monitoring than headline coupon.
Deal structures
- Unitranche: Blends senior + mezz; single tranche with tight covenants.
- Holdco PIK + Opco cash pay: Aligns incentives while preserving operating liquidity.
- Revenue‑linked: Floors with upside sharing; useful for seasonal cashflows.
- Convertible / warrants: For growth cases where equity optionality is valuable.
Risks & operator checklist
- Concentration: Cap single‑name and promoter exposure.
- Governance: Board observer rights; audit triggers; escrowed collections.
- Valuation drift: Force independent appraisals; avoid evergreening.
- Liquidity: Match fund tenors; build workout playbooks.
- Underwrite cash conversion, not just EBITDA.
- Model downside recovery with conservative collateral haircuts.
- Automate monitoring (bank feeds, GST, e‑invoicing) with early‑warning flags.