How Value is Created

Shannon Fritz
We review hundreds of opportunities each year and ultimately close on only 4%. 70% of our originations volume each year comes from the portfolio. The originators desk kill approximately 50% of the opportunities that they see.

Rebecca Darst
Success in private credit investing means capital preservation across business and market cycles. Simple, but not easy. It's not simply a matter of investing in unlisted assets. In practice, private credit value creation occurs across a full investment lifecycle, in which each step is vital to a successful outcome. Here, to take us through exactly how it happens is Shannon Fritz, Deputy Chief Investment Officer at Antares Capital. So, what are the core principles that have guided Antares through market cycles?

Shannon Fritz
Our core principles have really been centered around credit and relationships, relationships across borrowers, sponsors, investors as well as our employees. 70% of our originations volume each year comes from the portfolio. This is a significant advantage. We know the borrower well. We know the management team well. We've seen it perform, and it allows us to move quickly and confidently on those opportunities.

Rebecca Darst
Explain how relationships with equity sponsors are built and maintained over time, and how does that translate into high-quality deal flow?

Shannon Fritz
We have built a reputation in the industry and with our private equity sponsors of reliability, consistency and trust. To put in numbers, we evaluate hundreds of deals each year and ultimately close on only 4% of new opportunities. In many cases, our sponsors want us involved in the transaction and often times position to help us lead the transaction because of our trusted and consistent and reliable experience over three decades.

Rebecca Darst
How does leading most transactions impact your ability to drive deal flow and monitor the portfolio?

Shannon Fritz
There are very few private credit lenders who can consistently structure, underwrite, close, and manage portfolios on a scaled basis. Lead arranger status is critical for early and active portfolio management.

Rebecca Darst
Talk about the advantages that accrue through portfolio incumbency.

Shannon Fritz
Portfolio incumbency is a significant advantage, especially in a scaled and diverse portfolio. We have many borrowers in our portfolio that have been borrowers for five years, 15 years, up to 20 years, and this longevity and consistency is rare in the industry. And ultimately, these strong borrower and sponsor relationships reinforce strong deal flow, which drives strong portfolio construction. It's a virtuous cycle.

Rebecca Darst
What principles guide your underwriting and portfolio construction, and how do you ensure resilience across market cycles?

Shannon Fritz
Diversity has been and continues to be a key tenant. Diversity across borrower, sponsor and market. Within a concentrated portfolio, 3 to 4 underperforming loans or disappointing exits can have a material negative impact on that portfolio in a diverse, scaled portfolio, it will have a much more muted impact.

Rebecca Darst
What is it that differentiates the underwriting process at Antares?

Shannon Fritz
We have over 30 years of underwriting first lien private equity backed loans. We have very strong retention, so we hire in at the analyst and associate level. We benefit from retaining and attracting top talent due to our market leadership, our collaborative culture, our tremendous deal flow and senior leaders across our business that are also industry leaders. Our senior credit leaders have over 20 years of experience underwriting deals at Antares.

Rebecca Darst
How do you assess genuine value in a company versus what you might call window dressing, using EBITDA addbacks as an example?

Shannon Fritz
Our teams are developed to critically and independently think, and our teams independently assess all aspects of an opportunity the product differentiation, the competitive landscape, the sector, the financial performance as well as addbacks. Our team will critically look at each addback. There are times when we will have a different view on EBITDA than the sell side, and that's okay. We may still really like the opportunity and think it makes sense, but importantly, we come up with our own independent view of each aspect of the opportunity.

Rebecca Darst
Walk us through the initial triage of a deal.

Shannon Fritz
It starts with the originations team. Once an originator believes a deal warrants staffing from the underwriting team, it goes to our screening committee, which consists of senior credit and originations professionals. And what we're looking for and what we've always looked for in a borrower, are market leaders with differentiated products and services.

Rebecca Darst
Explain to our viewers how originators and underwriters work together.

Shannon Fritz
It is a very collaborative process across originators and underwriters. Originators are responsible for sourcing the deal and building and developing and managing those private equity sponsor relationships. Underwriters are responsible for deep dive diligence and independently assessing the credit. Our originators, almost all of them, have come from the underwriting team, which is a differentiator. They have meaningful credit, experience, and backgrounds that really aligns early on in the process and is a critical point of building trusted advised relationships with private equity sponsors to be reliable and consistent upfront.

Rebecca Darst
So once a deal is closed, what does active credit management look like in practice?

Shannon Fritz
As lead arranger on 90% of our portfolio, we have direct access to both management teams and sponsor teams for financial and business updates on a regular basis. While documentation terms are of course, very important. Private credit really benefits from trusted sponsor relationships and smaller groups of private credit lenders that are all relationship lenders and like-minded. If a loan is underperforming, we have a 20 member workout team, one of the largest and most tenured in the industry.

Rebecca Darst
Finally, if you could tell wealth advisors and their clients the single greatest value proposition for private credit in a portfolio today, what would it be?

Shannon Fritz
One the private credit asset class has proven itself. It has proven its resiliency, attractive returns, and less volatility than other asset classes for three decades. Secondly, it's critical to select the right asset manager, an asset manager with deep sponsor relationships to really drive deal flow to allow the selectivity, as well as a tenured and experienced team who has proven to manage through multiple cycles.

Rebecca Darst
Shannon, thank you for walking us through the private credit and investment lifecycle.

Shannon Fritz
Thank you. Pleasure to be here.