Private credit is an incredibly large universe, encompassing asset-based lending, direct lending, venture debt, real estate debt, and much more. However, firms rarely focus on all of these areas. Underwriters bring their own expertise, often focusing on a particular asset class or geography. Yet, investors value diversification, making it essential to consider the investment opportunities introduced by various underwriters.
In all Percent deals made through June 2022, Percent acted as the underwriter of each deal. Deals at this time were mostly focused on asset-based lending, Percent’s initial area of expertise, with borrowers often belonging to the specialty finance industry.
Thanks to the recent launch of our Percent Underwriter product, we can now launch deals underwritten by third parties, each responsible for the due diligence, structuring, syndication, and servicing of their specific deals. These partners bring their own expertise, experience, and relationships with established and emerging borrowers in various industries and geographies.
What is an underwriter?
In the context of private credit, an underwriter is a financial expert raising debt capital for a borrower, who may extend a loan to the borrower or arrange a transaction between the borrower and one or more investors. Underwriters conduct due diligence on the borrower and make an assessment of its riskiness and how best to structure a loan or other form of financing.
Underwriters are critical to evaluating borrower performance, financial resources, collateral, and the size, terms and structure of a financing agreement. All of this influences the likelihood that the borrower successfully repays the debt on time and in full. Underwriters can also structure transactions in an attempt to reduce risks, while maximizing potential returns.
What is a third-party underwriter on Percent?
Percent has performed the role of underwriter on past private credit deals. With the introduction of third-party underwriters, these new entities will be responsible not only for performing due diligence on parties involved in a deal, but structuring the deal, syndicating it to investors, and servicing the loan or the financing involved.
A third-party underwriter’s due diligence process can be different from that of Percent. Though our internal listing committee will review these deals, evaluating key aspects such as the borrowers and deal structures, how underwriters look at the borrower, collateral, and other attributes — as well as how they structure debt deals — could be very different from how Percent would evaluate and structure them.
As new third-party underwriters join the Percent platform, each will detail how they perform due diligence, along with any other services they might provide that could potentially help investors evaluate specific third-party underwritten deals.
How does Percent evaluate third-party underwriters?
Before we accept third-party underwriters on Percent, we conduct background checks and review their underwriting policies and track record. Thus, not every interested underwriter will join the Percent platform.
Our team seeks to work with underwriting firms with past experience and managed by experts in this specialized field. The Percent listing committee must approve a deal before it is marketed to investors, regardless of who has underwritten the transaction.
Is the investing process different?
No. Deals underwritten by third parties are syndicated in the same format. Investors have access to a deal page and can indicate their minimum and maximum allocations, as well as minimum desired APY range. Deals that are underwritten by third parties will also be syndicated as such.
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By featuring deals underwritten by third-party underwriters, we are able to present a greater volume and diversity of private credit offerings on Percent, giving investors the chance to generate more yield across a variety of unique and diversified investment opportunities.