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

Private Debt and AI

Private credit has grown to a $1.7 trillion asset class, driven by bank retrenchment from middle-market lending. Direct lenders, BDCs, and credit funds provide senior, unitranche, and subordinated debt to private equity-backed companies. Claude with ClaudeFinLab accelerates underwriting, portfolio monitoring, and structural analysis for private credit professionals.

Middle Market Credit Underwriting

• "Underwrite this middle market direct lending opportunity: borrower is a PE-backed B2B SaaS company. LTM EBITDA $18.4M, adjusted for $1.2M of non-recurring items. Total leverage 5.2x ($95.7M senior secured). Interest coverage (EBITDA/cash interest at SOFR+550bps): compute at SOFR 5.3%. DSCR including amortization (1% annual): compute. Does this meet typical direct lending criteria (5.0-6.0x leverage, 1.5x+ DSCR)?"
• "Analyze this credit's quality of earnings: reported EBITDA $22.1M. Addbacks: management consulting fees to PE sponsor $1.8M, one-time restructuring $2.4M, stock-based comp $1.1M, COVID impact adjustment $1.6M. Adjusted EBITDA = $29.0M. Which addbacks are standard and which require additional scrutiny? What 'lender-adjusted EBITDA' would you use?"
• "Build the leverage and coverage model: LTM EBITDA $18.4M, Capex $2.1M, change in working capital $0.8M. Levered free cash flow = ? Senior debt $95.7M at SOFR+550bps (current rate 10.8%), 5-year term with 1% annual amortization. Compute: interest expense, amortization payment, total debt service, DSCR, and free cash flow after debt service."

Unitranche and Structural Analysis

Unitranche combines senior and subordinated debt into a single instrument with a blended rate:

• "Structure a unitranche loan: $120M total facility, blended rate SOFR+600bps. Senior component $80M (SOFR+475bps), junior component $40M (implied SOFR+850bps). Agreement Among Lenders (AAL): senior lender receives priority distributions. Compute the blended rate and confirm it equals SOFR+600bps at these proportions."
• "Compare unitranche vs bifurcated structure for PE sponsor: (A) Unitranche $120M at SOFR+600bps; (B) First lien $80M at SOFR+450bps + Second lien $40M at SOFR+875bps. Which has lower all-in cost for the borrower? What are the administrative advantages of unitranche?"
• "Analyze the SOFR+550bps to SOFR+650bps spread for comparable middle-market unitranche loans. Borrower has 5.2x leverage, B+ equivalent credit quality, enterprise software sector. Is pricing appropriate vs recent market comps?"

PIK and Hybrid Instruments

• "Model PIK (payment-in-kind) toggle note: $40M subordinated note, 12% cash / 14% PIK. For years 1-3, borrower elects PIK. Compute: principal balance at end of each year, cumulative PIK accrual, and effective IRR to lender if repaid at year 5 at face value."
• "Evaluate PIK risk for this leveraged credit: LTM EBITDA $18.4M, total debt $130M (senior $95M cash pay + $35M PIK mezzanine at 15%). In 2 years, PIK balance grows to $41.2M. What is leverage at that point? If EBITDA grows 10% annually, what is the leverage path?"

Covenant Structure and Monitoring

• "Draft the financial maintenance covenant package for this direct loan: (1) Total Net Leverage ≤ 5.5x (tested quarterly), 35% equity cure right (one per four quarters). (2) Minimum Liquidity $5M. (3) Interest Coverage ≥ 1.5x. Propose a springing covenant structure and grace period terms."
• "Monitor this portfolio company's covenant compliance: Q3 actuals — EBITDA $4.1M (LTM $16.4M), total debt unchanged at $95.7M. Net Leverage = 5.83x vs 5.5x covenant. Covenant breach. Analyze: (a) equity cure calculation needed, (b) waiver fee market standard (25-50bps), (c) amendment considerations."

NAV Facilities and BDC Analysis

• "Model a NAV facility for a private credit fund: fund NAV $800M, 20% advance rate → $160M facility capacity. Current drawn $80M (50% utilization). Fund portfolio: 35 loans, 8 on watch list. Compute: borrowing base with 60% advance on performing loans / 30% on watch list. Is the facility over- or under-drawn?"
• "Analyze this BDC (Business Development Company): NAV per share $14.82, market price $13.40 (9.6% discount to NAV). Portfolio: $1.2B, 82% senior secured, 12% first-lien unitranche, 6% subordinated. Non-accrual: 2.1% of portfolio at fair value. Dividend yield: $0.44/quarter = 13.1% yield on cost. Is this BDC attractive vs peers?"

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