Antares Sees a Private Lending Reset As Deal Flow Slows: Q&A

(Bloomberg) -- David Brackett, chief executive officer of Antares Capital, and Michele Kovatchis, head of the credit advisory group, see the private credit landscape shifting away from financing buyouts, and with more lender-friendly terms.

Brackett and Kovatchis, part of the team that oversees Antares’ over $27 billion in capital under management, spoke with Kelsey Butler on April 24. Comments have been edited and condensed.

Are you changing your approach in this market?

DB: Our core focus right now is our existing portfolio. What we’ve found over operating through multiple cycles is that private equity firms and borrowers want a partner through good times and bad. So priority one is helping them navigate this tough time. We don’t expect to see a lot of new deal activity.

MK: There will be a bit of a reset, with what’s happened. There had been unprecedented purchase price multiples, but also aggressive terms that moved into the market. And I think it will be a bit of a reset in terms of future loan documents, at least for some time. Players like ourselves will be pushing back on some things that have gotten very aggressive, like anti-cash hoarding, closing some of the loopholes and tightening provisions. I think you’ll get back to the way things used to be a few years ago.

Read more in this week’s Credit Brief: Too Much Debt Is Just Fine

You had a playbook for a recession. How are you implementing it?

MK: We put in place a plan 18 to 24 months ago to be ready for some kind of downturn. In terms of being able to shift resources, we did it pretty much immediately. We’ve been doing that for the last five or six weeks, primarily at a senior level where we’re able to take those with senior experience, workout resources and spread them across the various impacted borrowers to help with requests for amendments, or whatever it may be.

Where are you seeing opportunities?

DB: Clearly, there are names that we know and that we own that as we trade down, as there are other lenders that maybe have liquidity issues and are not able to support companies going forward, it provides opportunities for us to step in. So in addition to workouts, we’re shifting attention and focus to opportunities in the secondary market.

How will the private credit landscape look in the near term?

DB: It’s hard to shine up the crystal ball too much in an environment like this, but I’d say a few things. One, new buyout activity is going to slow down to next to nothing and there’s just going to be the handful of extraordinary companies that are well insulated from the impacts of the pandemic. The bulk of activity in this kind of environment tends to be around amending, modifying, or restructuring existing credits.

In terms of competitive dynamics, there will likely be some competitors that don’t have the resources to play through, but overall I think the private credit community is very well capitalized.

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