Whether originating a new debt investment or monitoring an existing credit, Houlihan Lokey’s Lender Services team partners with debt providers to deliver an informed, customized credit diligence solution that leverages real-world lending experience.

Houlihan Lokey’s heritage of credit expertise makes us a natural partner when our clients assess credit risk. Our transaction professionals leverage that heritage and draw on their own experience originating senior and junior debt to provide our clients with credit-oriented visibility into the key factors impacting cash flow, asset coverage, and capital security. By drawing on market-leading resources in valuation, transaction support, and financial restructuring, we provide a seamless solution to lenders considering multiple outcomes.

We work collaboratively with sponsors, management teams, and other participants in the capital structure to efficiently and independently assess the potential risks and opportunities impacting our clients’ capital and return profiles. Our credit experience combined with a commercially friendly approach to independence restrictions allows us to provide candid, objective, and rigorous support and insights.

Our clients include
  • Private Equity/Hedge Funds
  • Credit Funds
  • BDCs
  • Finance Companies
  • Regulated Banks
We analyze the entire capital stack
  • Senior Debt – Cash Flow and Asset-Based
  • Junior Debt – 2nd Lien, Subordinated, Unsecured
  • Unitranche
  • Convertible Debt

Pre-Funding Lender Diligence

Primacy of capital drives our approach to understanding and mitigating credit risk. We tailor our services to match our clients’ underwriting criteria, lending objectives, and position in the capital stack, as well as the borrower’s credit profile. 

We quickly identify, analyze, and quantify impacts to cash flows, asset coverage, and capital security. This analysis is then converted to a straightforward, actionable report that can be leveraged for credit underwriting, the negotiation of terms, and the development of an asset management plan.

Our procedures are tailored to each specific credit situation and can include  

Leveraged Structure Asset-Based Structure
  • Preparation of a lender-focused quality of earnings report (“bankable” adjustments)
  • Understanding and assessing the cash flow impact of key events and trends in historical performance
  • Evaluating projection assumptions and the borrower’s ability to adequately service the proposed debt structure
  • Assessing working capital needs and the potential leakage of cash flow
  • Evaluating the financial reporting environment
  • Performing an ABL field exam (on-site confirmation and substantive testing)
  • Calculating an ABL borrowing base
  • Testing and confirming eligibility criteria
  • Assessing reporting quality and capabilities
  • Analyzing intra-period availability and liquidity
  • Coordinating asset valuations
  • Analyzing asset liquidation scenarios
Credit Performance Exit Alternatives
  • Identifying lien exposure risks and superior payment obligations
  • Calculating and sensitizing covenants
  • Identifying key operational and/or industry risks that could impact credit performance
  • Reviewing credit agreement and reconciliation with diligence findings
  • Identifying most likely secondary sources of repayment
  • Estimating cash flow waterfalls for various exit scenarios

Post-Transaction Monitoring

After the transaction, we assist in scheduled monthly, quarterly, or annual credit monitoring. This includes assessing historical and pro-forma impacts of scheduled and non-scheduled changes in the business, such as capital expansion, tuck-in acquisitions, disposals, dividend recapitalizations, and performance volatility and recurring collateral exams.  

The result is a timely and cost-efficient view of credit performance that can be consistently applied across a broad portfolio or series of credits, such as

  • Recurring collateral exams
  • Performance-to-plan evaluation
  • Synergy realization progress updates
  • Review of modification requests
  • Assessment of covenant-triggering events
  • Reevaluation of exit scenarios

Actionable Results

We help clients identify or confirm their credit risks, develop plans to mitigate these risks, and ensure that debt is structured and priced to reflect risk dynamics. We support the origination, credit approval, and syndication processes with objective, insightful, industry-focused analysis.

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