As private credit markets continue to grow, questions around underwriting standards, risk management, and portfolio resilience have moved to the forefront. at SuperReturn Private Credit Europe, Melissa Bockelmann, Aviva Investors, and Tom Maughan, Bain Capital, offered a grounded view of how disciplined private credit underwriting actually works today. Drawing on macroeconomic insight, deep industry specialisation, and structured downside protection across direct lending and asset‑based finance, they explain why diversification, flexibility, and the ability to walk away from deals remain essential to delivering consistent risk‑adjusted returns.
The discipline isn’t gone, it’s moved earlier
Tom is clear: “Underwriting standards in private credit remain pretty healthy… in part because we can always say no to deals.” At Bain Capital, that discipline starts before the deal arrives.
• A firmwide macroeconomic team briefs investment teams monthly on GDP, inflation, and market trends (including how AI is impacting software).
• Investors across venture, private equity, and credit are industry specialists, healthcare, software, and consumer, creating a shared knowledge fabric.
• Insights are benchmarked against liquid credit markets (with 20–100+ issuers per sector) to ground private deals in live comps.
Industry first, then structure
For Tom, industry selection is the first filter — then structure follows.
• Focus area: companies with EBITDA of €10–75m.
• Covenants and normal protections are still present.
• Most financed businesses are free cash flow positive.
• Pricing has trended down, but the balance between covenants, pricing, and structure remains.
“We still see a healthy balance in covenants, pricing, and industry selection.”
What the portfolios look like now
• Legal maturities around seven years.
• Hold periods have lengthened to ~4–5 years (vs. 2–3 historically), leading to more mature portfolios and often lower leverage.
• Some deals were done at wider spreads and better documentation, improving risk‑return.
• As maturities approach, extensions (1–2 years) are a governance moment to tighten terms if needed, or modernise where performance merits.
"Extension is a moment to improve documentation and structure, good or bad.”
Where ABL fits: Diversification, downside, and complexity
Melissa sees LPs shifting beyond core direct lending: “Much of it is diversification… not just geographically, but across asset classes.” Her team’s study found 37% of investors are still not allocated to asset‑based finance — despite a trillion‑scale market opportunity. Why ABL belongs in the toolkit:
• Contractual cash flows anchor risk/return.
• Single‑issuer risk is reduced; exposure is diverse across sectors.
• You can engineer protections through structure.
“It’s a great diversifier… but the complexity premium isn’t free.” The catch, and the opportunity, is complexity:
• ABL underwriting adds servicer and originator operational risk to classic borrower/credit risk.
• It’s labour‑intensive and easy to overlook if mandates are too narrow.
• Downside protection is earned via bespoke structuring and diligence discipline.
Flexibility beats fashion
For Melissa, the real edge is a flexible mandate: Some areas (e.g., supply chain finance) can be attractive at times and unattractive at others. Walk away when the return per unit of risk degrades. Avoid getting locked into narrow themes (music royalties, NAV lending) if you can’t pivot.
"Don’t cut corners on due diligence, and be ready to walk away.”
What this means for LPs
Use macro and industry context to shape where you play. Insist on protections that actually work. Treat ABL as a diversifier with downside features, but respect the complexity. Back managers who can say no and pivot. Bottom line: Healthy underwriting in 2026 is macro‑informed, specialist‑led, and structure‑first, with the judgment to pass.
