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Hello Friends,

Welcome to the latest edition of Private Credit Insights where we reflect on shifts in the market and new opportunities before us. If you are new to PCI and would like a look back at our past editions, click here to view them at our website.

As we navigate the evolving financial landscape, a pivotal moment approaches for private credit and direct lending solutions. Over the next 12 to 18 months, we anticipate six to eight quarter-point rate cuts, potentially reversing over a third of the recent interest rate hikes, assuming inflation remains subdued.

This month's PCI features a column with PPL President Michael McAdams, positing whether mid-sized business are at greater risk than corporate or consumer defaults. We offer context around Nationally Recognized Statistical Rating Organizations (NSRSOs) and the financial data they may provide to analyze and gauge related risk factors.

Offering an example of PPL's vested approach, below we share a transaction with a transportation company where we were able to help them grow by providing funds to expand their fleet and acquire other businesses.

Join us as we delve into these developments and explore strategic insights to capitalize on the dynamic interest rate landscape. These shifts present unique opportunities to consider variable rate debt, positioning your portfolio for optimized returns in a changing market environment.

We thank you for being part of our PCI community and welcome your feedback and insights. Until our next edition, stay well and financially nimble.

Thank you,

Jason Shlecter, CFA

Director of Credit

Pasadena Private Lending

Call: 626.993.9350

Connect: LinkedIn

Visit: pasadena-private-lending.com

By Michael McAdams

President, Pasadena Private Lending

Historically, many statistical experts have put small-to medium-sized enterprises (or SMEs) into the middle of the classic statistical bell curve of risk. That is, SMEs are often placed in the medium-to-higher risk category, between low-frequency large corporate defaults and high frequency consumer defaults.

In this simplistic chart, the left tail of risk is for large corporate issuers who infrequently default because of their resources, experienced management teams, and accounting oversight as well as their customer's continued acceptance of their products. The right tail of risk is for consumers who, as a group, may default with regularity, although exposures are typically small and highly diversified.

Educational Definitions

Nationally Recognized Statistical Rating Organizations (NRSRO)

Nationally Recognized Statistical Rating Organizations (NRSRO)

A credit rating agency (CRA) approved by the U.S. Securities and Exchange Commission (SEC) to provide information that financial firms must rely on for certain regulatory purposes.

Examples

Standard and Poor's

Moody's

Fitch Investor Services

Kroll Bond Rating Agency

DBRS/Morningstar

History

The use of the term NRSRO began in 1975 when the SEC promulgated rules regarding bank and broker-dealer net capital requirements.

Prior to 1975, the SEC did not adopt specific standards for determining which credit rating agencies were "nationally recognized", and instead addressed the question on a case-by-case basis.

"The single most important factor in the Commission staff's assessment of NRSRO status is whether the rating agency is "nationally recognized" in the United States as an issuer of credible and reliable ratings by the predominant users of securities ratings."

Borrower Spotlight

Transportation Rental & Services Company

$3.5MM Loan & $1MM Revolver Upsized to $4.5MM Loan & $1MM Revolver

A private club delivering premium chauffeured services both in the U.S. and various cities internationally sought working capital for seasonal expenses and special acquisitions. PPL put its experts and creative financing to work in providing overadvances and timely revolver draws.

After witnessing their considerable growth through the expansion of their fleet and acquisition of other businesses, PPL further catalyzed momentum by upsizing their loan nearly $1MM.

Have an opportunity you’d like help with? Explore what’s possible with our experts.

Our prior borrowers, many having become clients of other Pasadena Private Financial Group units, asked and we listened.

Beyond providing debt capital, we strive to facilitate the growth and prosperity of your company and confidence in your operations and if necessary, we can introduce you to experts who can solve problems or take your business to the next level.

We invite you to visit our Pasadena Private Financial Group home for more information and to explore our range of expertise.

"Lenders shouldn't burden business owners and their staff with excessive paperwork and administrative minutia."

We are committed to fueling your business' growth and boosting your operational confidence.

Creative Lending for

Successful Entrepreneurs

CONTACT US

626.993.9350

hello@pasadena-private.com

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