1. What Private Credit Law Covers and How Deals Are Structured
Private credit law governs direct lending by non-bank financial institutions, credit funds, and institutional investors who provide debt financing to companies that cannot access traditional bank credit or choose not to.
Private Credit Law Vs. Bank Lending: Key Legal Differences
Private credit transactions differ from bank loans in five critical legal dimensions. Lenders and borrowers evaluating private credit transaction structures should seek private credit legal counsel to assess how private credit law applies to the specific deal and what legal protections and risks each party is taking on.
Direct Lending, Mezzanine, and Unitranche Credit Structures
Private credit law governs three primary lending structures that differ in their position in the capital structure, their collateral rights, and their enforcement priority. Lenders structuring private credit investments should seek debt finance legal counsel to evaluate the appropriate credit structure for the deal and ensure that the legal documentation correctly reflects the agreed economics and priority.
2. Negotiating Loan Terms, Covenants, and Credit Protections
The credit agreement is the foundational document in a private credit transaction.
Loan Agreement Drafting: Key Terms, Representations, and Conditions
A private credit loan agreement must include a complete set of representations and warranties about the borrower's financial condition, legal status, compliance with law, and absence of material adverse changes. These representations are made at signing and are repeated at each borrowing under a revolving facility. Borrowers and lenders negotiating private credit agreements should seek loan agreement legal counsel to review the representations, conditions, and MAC clause language before signing.
Financial and Maintenance Covenants: How Lenders Control Borrower Risk
Covenants in private credit transactions are the legal mechanisms through which the lender controls borrower behavior throughout the life of the loan. Financial covenants test the borrower's financial performance on a regular basis and give the lender the right to declare a default if the borrower fails the test. Lenders and borrowers negotiating covenant packages should seek investment grade financing legal counsel to evaluate the financial covenant thresholds and ensure the covenant package provides adequate lender protection without unnecessary operational constraints.
3. Collateral, Security Interests, and Lender Priority
The collateral package in a private credit transaction is what converts an unsecured obligation into a secured claim that survives borrower bankruptcy.
Perfecting Security Interests under Ucc Article 9
UCC Article 9 governs the creation, attachment, and perfection of security interests in personal property, including accounts receivable, inventory, equipment, intellectual property rights, investment accounts, and general intangibles. A security interest attaches when the secured party gives value, the debtor has rights in the collateral, and the debtor authenticates a security agreement. Lenders taking security in private credit transactions should seek asset-based lending legal counsel to structure the collateral package, prepare the security agreement and UCC financing statements, and implement a perfection monitoring process for the life of the loan.
Intercreditor Agreements and Lender Priority in Leveraged Deals
When a private credit transaction involves multiple lenders at different levels of the capital structure, an intercreditor agreement governs the legal relationship between the senior and junior lenders. The intercreditor agreement establishes the priority of security interests, the conditions under which the junior lender can exercise enforcement rights, and the standstill period during which the junior lender must refrain from enforcement while the senior lender takes the lead. Lenders and borrowers in multi-lender private credit transactions should seek loan agreements and disputes legal counsel to negotiate the intercreditor agreement and ensure that the priority, standstill, and payment waterfall provisions correctly reflect the agreed economic arrangement.
4. Default, Enforcement, and Restructuring under Private Credit Law
Default in a private credit transaction triggers a cascade of contractual rights that can result in acceleration of the entire loan, enforcement against collateral, and, if the lender chooses, the initiation of bankruptcy proceedings.
Events of Default and Lender Remedies in Private Credit
Events of default in private credit loan agreements fall into three categories: payment defaults, financial covenant defaults, and non-financial covenant defaults. Cross-default provisions are a fourth mechanism that extends the default to all of the borrower's credit agreements when a default occurs under any one of them. Lenders managing events of default in private credit transactions should seek debt restructuring legal counsel to evaluate the remedies available under the credit agreement and UCC and to assess whether an out-of-court workout or formal enforcement is the optimal strategy.
Debt Restructuring, Forbearance, and Out-of-Court Workouts
When a borrower is in financial distress but not yet in default, or when the lender prefers a negotiated resolution to formal enforcement, private credit law supports a range of out-of-court restructuring mechanisms. A forbearance agreement is a contract through which the lender agrees to refrain from exercising its default remedies for a specified period in exchange for the borrower's agreement to comply with additional conditions, provide regular financial reporting, and engage in good-faith restructuring negotiations. Borrowers in financial distress and private credit lenders evaluating workout options should seek restructuring and insolvency legal counsel to evaluate all available restructuring paths and assess the risk of a borrower filing for bankruptcy protection during the workout process.
21 Apr, 2026
