AI for Private Credit: Claude Tools for Direct Lending and Private Debt Analysis

Private Credit and AI

Private credit has grown to a $1.7 trillion asset class in 2026, driven by the retreat of traditional banks from leveraged lending and the demand for floating-rate, covenant-heavy debt structures. Direct lenders — BDCs, credit funds, insurance companies — deploy capital into unitranche, first-lien, and mezzanine structures for sponsor-backed and non-sponsored middle market companies. Claude with ClaudeFinLab accelerates the credit underwriting, document review, and portfolio monitoring workflows central to private credit investing.

Credit Underwriting and Memo Preparation

• "Prepare a credit memo for this direct lending opportunity: Target Co, software business, $42M EBITDA, 4.2x leverage ($176M unitranche at SOFR+575bps). Sections needed: (1) Company overview and competitive position; (2) Financial performance (3-year history + LTM); (3) Leverage and coverage analysis; (4) Key risks and mitigants; (5) Covenant package; (6) Recovery analysis; (7) Investment recommendation. I'll provide the CIM and financials — draft each section."
• "EBITDA quality adjustment for credit purposes: reported EBITDA $42M. Management addbacks: $6.8M (restructuring, above-market management fees, one-time items). Bank-adjusted EBITDA accepted by agent: $46.2M. Conservative credit case EBITDA (lender-adjusted, excluding growth addbacks): $40.4M. Show leverage ratios at each EBITDA level. At which EBITDA definition does the deal breach 5.0x total leverage (our hard limit)?"
• "DSCR and interest coverage analysis: EBITDA $42M, total debt $176M at all-in rate 9.85% (SOFR 4.85% + 500bps). Annual interest: $176M × 9.85% = $17.3M. EBIT/interest (EBIT = EBITDA − D&A $8.4M = $33.6M): 33.6/17.3 = 1.94x. DSCR (EBITDA − capex $4.2M − taxes $2.8M) / interest: 35.0/17.3 = 2.02x. Is this adequate for a 4.2x levered software company? What is the DSCR floor covenant we should set?"

Covenant Structuring and Analysis

• "Structure the covenant package for this unitranche deal: $176M to a software company at 4.2x leverage. Recommend: (1) Financial maintenance covenant — Total Net Leverage ≤ 5.5x (25% cushion to close), tested quarterly; (2) Minimum liquidity covenant ≥ $8M; (3) Fixed charge coverage ≥ 1.10x (tested if revolver draws exceed 35% of commitment). Explain the 25% covenant cushion standard and when tighter or looser is appropriate."
• "EBITDA definition for covenant purposes: the credit agreement uses 'Consolidated EBITDA' with an addback basket: (A) non-recurring charges up to $5M (or 15% of LTM EBITDA, whichever is greater); (B) unrealized synergies from acquisitions for 18 months, uncapped; (C) run-rate cost savings, uncapped. How aggressive is this EBITDA definition vs market? What is the covenant 'effective leverage' using GAAP EBITDA vs covenant EBITDA?"
• "Covenant compliance model: build a quarterly covenant test for the next 8 quarters. Starting LTM EBITDA $42M, covenant EBITDA definition allows $6.8M of addbacks → $48.8M. Covenant leverage threshold 5.5x → maximum covenant debt $268.4M. Current debt $176M → headroom $92.4M. Stress test: if EBITDA declines 20% over 4 quarters, what is the covenant trigger quarter and what is the debt paydown needed to cure?"

Deal Structuring and Pricing

• "Unitranche vs first-lien/second-lien comparison: $176M total debt. Option A: unitranche at SOFR+575bps. Option B: $132M first lien at SOFR+425bps + $44M second lien at SOFR+850bps. Weighted average cost of Option B: (132/176 × 425 + 44/176 × 850) = 318+213 = 531bps. Unitranche at 575bps costs the borrower 44bps more — but: (1) single lender relationship, (2) no inter-creditor agreement complexity, (3) simpler covenant package. When does a borrower prefer unitranche?"
• "PIK toggle analysis: the deal includes a PIK toggle — the borrower can elect to PIK up to 2% of the 9.85% spread for the first 3 years (cash rate drops to 7.85%, PIK accrues to principal). If the borrower PIKs for 2 years: Year 1 PIK: $176M × 2% = $3.52M → new principal $179.52M. Year 2 PIK: $179.52M × 2% = $3.59M → $183.11M. Total additional interest from PIK compounding vs cash pay: $7.11M. Lender yield pick-up from PIK toggle?"
• "Origination fee and OID economics: deal size $176M. OID 1.5% → proceeds to borrower $173.4M (repays $176M par at maturity). Origination fee 1.0% → $1.76M cash fee to lender at close. All-in yield: spread 575bps + OID amortized over 4-year average life 38bps + origination fee amortized 25bps → all-in spread 638bps. Gross yield 4.85% SOFR + 638bps = 11.23%."

Credit Agreement Review

• "Review this 280-page credit agreement [paste key sections]. Extract: (1) EBITDA definition with all addback carve-outs; (2) Restricted payment basket (when can the borrower pay dividends/distributions); (3) Permitted acquisition basket; (4) Incremental debt basket (accordion feature and incurrence tests); (5) Events of default; (6) Financial maintenance covenants. Flag any provisions that are unusually borrower-friendly vs current market."
• "Restricted payment analysis: the credit agreement allows restricted payments if: (A) no default exists, and (B) pro forma net leverage ≤ 3.75x. Current leverage 4.2x. The borrower wants to pay a $15M distribution to the PE sponsor. Can they? If EBITDA grows to $55M, at what debt level would leverage drop to 3.75x? How much debt must be repaid first?"

Portfolio Monitoring

• "Portfolio company quarterly monitoring: 24 portfolio companies in direct lending book. Flag companies with: (1) LTM EBITDA declining >10% vs underwriting case; (2) Covenant headroom <15%; (3) Current ratio <1.0x; (4) Past due interest (any grace period breach). From the quarterly financials I'll upload, produce a portfolio heat map with traffic light status (green/amber/red) for each."
• "Credit watch memo for distressed portfolio company: EBITDA has declined from $42M (underwriting) to $28M (-33%). Net leverage is now 6.3x vs covenant 5.5x — in breach. The company has requested a waiver. Draft the lender's analysis: (1) is the breach temporary or structural?, (2) what is the estimated recovery (enterprise value at 5x distressed EBITDA vs 4.2x original acquisition EV); (3) recommended response: waiver with fee, amendment, or enforcement?"

Related Articles

• Credit Analysis AI
• Private Debt AI
• Leveraged Finance AI