The mindset for underwriting a loan to hold for years is fundamentally different from one intended for quick syndication. It requires a higher level of seriousness and diligence, akin to vetting a long-term roommate versus offering someone a couch for one night.
For an incumbent, mission-critical company, AI presents a significant opportunity. By leveraging their proprietary data to build AI tools, they can enhance their product, improve margins, and further solidify their market leadership, making them more attractive credit risks.
The firm intentionally structures its private debt funds for institutional investors without redemption options. They view offering liquidity on an inherently illiquid asset as a risky asset-liability mismatch, questioning competitors who promise an "illiquidity premium without the illiquidity."
As a Limited Partner (LP) in the same PE funds they lend alongside, Neuberger accesses direct, unvarnished reporting on a portfolio company's performance. This provides a more honest view of a business compared to the polished materials prepared by a sell-side investment bank during a sale process.
Unlike syndicated loans where repricing can be threatened easily by banks, direct loans have structural protections. Borrowers must find an entirely new lender and pay new fees to refinance, making it much harder to reprice debt downwards and thus preserving higher returns for investors.
Private lenders may offer a partial Payment-In-Kind (PIK) toggle as a strategic feature to win a competitive deal for a healthy company. This "PIK on purpose" is distinct from "bad PIK," which occurs when a struggling company cannot service its cash interest payments and is forced to capitalize them.
While leverage multiples are similar across the market, Neuberger targets companies acquired at high purchase price multiples (avg. 17x). This strategy results in a significantly lower loan-to-value ratio, providing a larger equity cushion and reducing the lender's ultimate risk.
By housing its private debt arm next to its private equity fund-of-funds, Neuberger ensures PE firms continue showing them deals even after a rejection. The PE firms still want Neuberger as an investor in their funds, creating a unique ability to be highly selective without damaging relationships.