Where the Stress Shows Up

Where the Stress Shows Up

The PE shows this week circled one problem from three sides: the money is stuck, and credit is where the strain shows.

Start with the market. On the Private Equity Funcast, Hunt Club's Nick Cromydas walked through a portfolio that has aged in place. Holds now run seven years and up, continuation vehicles stretch some to ten or twelve, and "something broke in February," when the market decided software was no longer the best business model in the world. Valuations are upside down, waterfalls look nothing like they did six months ago, and management teams are underwater on the value-creation plans they signed. What Cromydas sees as a result: a wave of management carve-outs, executives negotiating money off the top of a deal, before the waterfall, just to stay.

When equity is stuck, credit fills the gap, and two shows made that concrete. On The LAB, Ashgrove Capital's Jonathan Ferguson described underwriting B2B software on the business's own fundamentals rather than its next round. His firm values those companies at roughly half what equity buyers have paid, about three times ARR against a market that averaged six, which hands a lender a buffer when the re-ratings come. On Capital Allocators, MA Financial's Frank Danieli warned what happens when that discipline slips. In sponsor-backed software lending, he sees the classic erosion: give up price, then covenants, until "documents become Swiss cheese" and the book quietly concentrates into the same software names.

The throughline for the week: the deal-making slowdown is old news. The live action has moved to the capital structure, where private credit is repricing software on its own terms and deciding who gets rescued and who gets restructured.

Listen:

• Private Equity Funcast — How a Tough PE Market & AI Are Changing Exec Search, Hunt Club's Nick Cromydas (Jul 15). The clearest read on holds, valuations, and carve-outs.
• The LAB: Value Creation in PE — Ashgrove Capital's Jonathan Ferguson (Jul 16). How a credit fund prices software now.
• Capital Allocators — Frank Danieli, MA Financial (Jul 16). The private-credit risk building underneath.