Ari Blaut and Neal McKnight Discuss Impact of Coronavirus on PE-Backed Companies with LCD NewsMay 11, 2020
S&C corporate partners Ari Blaut and Neal McKnight spoke with Leveraged Commentary & Data about how companies backed by private equity sponsors and their private credit lenders may deal with coronavirus-related revenue losses and their effect on loan covenants.
Conversations between sponsors and lenders in the early days of the pandemic have been largely collegial and constructive, the article states, although the next round of negotiations may be more difficult. To date, some lenders have extended deadlines on financials-reporting and waived audit requirements to give borrowers some breathing room.
Ari Blaut told LCD News that this collaborative approach is a feature of the relationship between private credit providers and private equity sponsors: “What makes many private credit providers different is the relationship with the PE sponsor,” he said. “It helps prevent the PE sponsor from being aggressive and going to war because they know their private credit provider is going to be the important lender in four, five, or six of their portfolio companies.” Likewise, the private credit provider also has an incentive to engage in constructive conversations.
Neal McKnight added that the close ties between lenders and their portfolio companies enable lenders and sponsors to draw up bespoke solutions. “Private credit lenders do a lot of diligence—they keep up with a company. They may have board observation rights. They know their portfolio companies and tend to be more aware of situations,” he said. “That helps them be more nimble in responding.”
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