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Private credit is transforming the landscape of corporate finance. What once was a niche alternative financing option has now become a preferred source of quick, adaptable capital for companies with urgent or complex needs—gaps that traditional lenders, limited by regulation and risk thresholds, cannot immediately fill.
However, behind the speed, flexibility, and certainty that characterize private credit lies a sophisticated, highly disciplined framework. Essentially, private credit is a structuring business—centered around contractual arrangements, thorough due diligence, meticulous risk management, and strong alignment between borrower and lender. Gaining an understanding of this structural design is key to comprehending the nature of the asset class itself.
The core advantage of private credit lies in its ability to craft financing solutions tailored to each borrower’s unique situation and specific transaction requirements.
The process begins with detailed due diligence. Lenders evaluate fundamental business aspects, counterparty stability, operational dynamics, governance quality, and cash flow resilience. For example:
- A manufacturer with stable EBITDA might require a senior secured term loan with scheduled amortization.
- A property developer might need a project-specific loan linked to construction milestones.
- A rapidly growing tech firm could benefit from a hybrid structure that includes equity or warrants at exit to accommodate cash flow constraints while supporting growth.
Since private credit lenders negotiate directly with management and shareholders, they can create capital solutions that fit the precise needs of the business. Borrowers enjoy confidentiality, speed, and precision, while lenders benefit from protections embedded within the deal’s structure—protections that are often more robust and bespoke than those offered by public fixed-income markets.
This level of customization is why private credit is increasingly regarded as a true financing partner rather than merely a funding source. Borrowers obtain capital that aligns with their operational rhythm, while lenders gain enhanced downside protection through contractual design rather than dependence on market liquidity.
ENGINEERING PROTECTION
In private credit, risk mitigation is achieved through structural features rather than liquidity attributes. Each transaction involves a cash flow waterfall—revenues are allocated in strict priority: first to essential operations and debt service, then to reserves, and finally to discretionary uses—ensuring predictability and reducing leakage. Mechanisms like cash sweeps accelerate debt repayment when performance exceeds expectations, further mitigating risk.
Collateral rights are another vital component. Depending on the business, lenders may secure interests over land, receivables, machinery, inventory, intellectual property, shares, or project contracts. Each asset undergoes independent valuation and stress-testing to ensure realizable value under recessionary scenarios, rather than relying on overly optimistic assumptions.
Whole structure design is complemented by comprehensive due diligence. It identifies potential risks, which are then addressed through contractual features like covenants, reporting requirements, guarantees, escrow arrangements, and enforcement mechanisms—collectively creating resilient frameworks that perform across market cycles.
Interest payments are carefully structured—using cash-pay interest for ongoing discipline, payment-in-kind (PIK) interest to provide breathing space during transitional periods, and performance-based components to align incentives. Sometimes, hybrid structures incorporate equity kickers or profit-sharing arrangements to balance risk and reward.
A Versatile Toolkit
Private credit features a broad array of tools to meet complex financing needs. Hybrid-capital solutions—such as preferred equity with put options, loans with warrants, convertible instruments, or revenue-linked repayment structures—are particularly useful for businesses with clear cash flow prospects but limited collateral.
Prepayment protections are crucial, given that private credit investments often span multiple years. To compensate for early refinancing, lenders typically include features like make-whole provisions, non-call periods, and step-down fees—standard in private credit funds and publicly listed vehicles alike.
These tools ensure that investors are adequately compensated for the time, risk, and due diligence involved in structuring each deal.
Structuring & Collaborative Approach
At its essence, private credit embodies a partnership model—benefitting both borrower and lender. Borrowers enjoy certainty, speed, and customized solutions, while lenders gain better visibility, governance rights, and early intervention mechanisms to protect value if performance weakens.
Thorough due diligence offers deep insights into financial, operational, and governance risks. This informs controls over cash flow, collateral security, and ongoing monitoring through covenants and reporting—a kind of early warning system. Interest rate and tenor designs are flexible enough to adapt to real-world developments without compromising safety. Clear exit strategies provide both parties with long-term predictability.
This approach is particularly relevant in markets like Thailand, where mid-market companies often require tailored capital solutions that traditional banking cannot readily provide under standard terms. As the Thai private credit market grows, the quality of due diligence and structuring capabilities will be vital in shaping the sector’s credibility and long-term viability.
Rewin Pataibunlue, a Founding Partner and Group CEO of PrimeStreet Group—an investment banking, strategic consulting, and alternative fund management firm based in Bangkok—is the author of this series.