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Alternative Market Briefing

Monroe Capital eyes opportunities in technology and software lending

Wednesday, April 01, 2020

Bailey McCann, Opalesque New York:

A small but growing area of private debt could be a new source of opportunity for investors. A new paper from Monroe Capital highlights how technology and software as a service private debt transactions can be a source of return.

In the paper, Monroe argues that new technologies like 5G, along with more robust software will be part of the critical infrastructure of many businesses in the near term. Private debt can play a role in financing the growth of those companies, but few firms can do it because it requires a bit of specialization in both origination and underwriting.

"These deals are very different from cash flow lending or asset-based lending," explains Zia Uddin, managing director, portfolio manager - private credit at Monroe in an interview with Opalesque. "These deals are available at multiples of recurring revenue. But you have to have an origination team that's on the ground in technology hubs and you have to have an underwriting team that is familiar with how the business models work."

Uddin adds that portfolio monitoring throughout the life of the transaction also requires a bit of specialization. SaaS and other technology companies have to adapt quickly to changes in their industry. That makes for a more dynamic deal environment than private debt firms may be prepared for. The level of specialization required creates barriers to entry and that helps elevate investment returns.

"There are a handful of ......................

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