The FAST Take

Image
Decorative background

A Direct Lender's Playbook to Minimizing Losses

11/08/2024

Q: How does a direct lender deal with underperforming companies?

— RIA, Upper Midwest Region

A: It is important to be the lead (control) lender. This allows for proactive monitoring and, if needed, managing, of portfolio company underperformance. Direct lenders with low losses follow three core tenets: be early, be smart and be flexible.

  • Be early: Lead (control) position provides direct access to portfolio company management and financial sponsors. Lead lenders can identify potential issues early on and, if needed, lead a restructuring process. Once in place, the lead position is supported through ongoing portfolio management and monitoring.
     
  • Be smart: Lead lenders have unique access to key stakeholders and portfolio company information, allowing for active monitoring through reporting requirements, robust covenant packages and board observation rights. This is reinforced by a large and diversified platform, providing access to data and information across industries and different business models.
     
  • Be flexible: Established direct lenders seek a “custom fit” solution that matches the unique circumstances of every individual investment and industry. Scale, breadth and depth of resources, along with a deep capital base, allows for flexibility in approach. Furthermore, a dedicated team brings expertise in the in-court / out-of-court restructuring process, sale processes, and, when necessary, ownership of businesses across a variety of different industries.

Lead lenders have the highest frequency of and most direct access to the management and financial sponsors. Leveraging this is critical to identifying credit quality deterioration well in advance of an actual issue. By utilizing a proactive, smart and flexible approach, losses can be minimized, or recoveries can be maximized, in workout situations.

Icon of bulb with stopwatch inside

Never Miss a Take

Sign up for notifications from The FAST Take

The Financial Advisor Solutions Team

Ares Wealth Management Solutions

Carlin Calcaterra

Managing Director, Financial Advisor Solutions Team

Brendan McCurdy

Managing Director, Financial Advisor Solutions Team

Ready to learn more?

AccessAres is your resource for education and information about the private markets. Talk to us to learn more about these important asset classes.

Professional woman smiling at her desk
×

Contact Us

Connect with our Wealth Management Solutions team that works with Financial Advisors and Private Wealth Managers to provide alternative solutions. For investors based in EMEA and APAC, please visit our Non-U.S. Investors Contact section.

 

Individual Investors

Reach out to your Financial Advisor.

 

Financial Advisor Inquiries

       (866) 324-7348

 

Financial Advisors Information Request

You are now entering the AccessAres website

AccessAres is the thought-leadership and educational division of Ares Wealth Management Solutions. The materials distributed by AccessAres are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell or hold any security, investment strategy or market sector. Ares Wealth Management Solutions is a global brand of Ares Management Corporation.

You are now leaving the AccessAres website

AccessAres is the thought-leadership and educational division of Ares Wealth Management Solutions. The materials distributed by AccessAres are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell or hold any security, investment strategy or market sector. Ares Wealth Management Solutions is a global brand of Ares Management Corporation.

You are now leaving the AccessAres website

AccessAres is the thought-leadership and educational division of Ares Wealth Management Solutions. The materials distributed by AccessAres are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell or hold any security, investment strategy or market sector. Ares Wealth Management Solutions is a global brand of Ares Management Corporation.