In today’s private credit market, the pace of deal-making is faster than ever, and the pressure to close often challenges even the most disciplined lenders. With borrowers pushing for aggressive terms under the guise of being “market standard,” how can credit teams stand firm and protect their downside?
The answer lies in precision benchmarking. MEP Capital, a New York–based private investment firm focused exclusively on media and entertainment, recently demonstrated how data-driven covenant benchmarking, powered by Allvue’s credit solutions, helped them turn the tables in a tough negotiation and secure resilient deal terms.
The Challenge: Balancing Opportunity with Risk
MEP Capital was evaluating a borrower in the media and entertainment sector with less than $50 million in EBITDA. While the company’s intellectual property portfolio was strong, its historical revenues were volatile.
The borrower proposed highly aggressive covenant terms, including 5.0x initial leverage, no step-downs, and minimal liquidity or restricted payment controls, claiming this structure was consistent with the market. For MEP, the stakes were high: they needed to preserve discipline without losing the deal.
The Solution: Covenant Intelligence with Allvue
Instead of relying on instinct or anecdotal evidence, MEP turned to Allvue’s credit solutions for anonymized, sector-specific benchmarks. By analyzing a vast dataset of from comparable mid-market media and entertainment companies, MEP was able to isolate the most relevant peers.
The benchmarking revealed:
-
Initial leverage covenants in the peer group clustered around 4.5x, with a 25% median cushion.
-
Interest coverage covenants appeared in 70%+ of comparable deals, typically at 1.75x.
-
Minimum liquidity requirements were standard in nearly 60% of transactions, ranging from $1M to $5M.
-
65% of loans included leverage-linked payment blockers, restricting dividends or buybacks above 4x total leverage.
Armed with these benchmarks, MEP crafted a counterproposal rooted in market reality.
The Outcome: A Data-Driven Win
Initially, the borrower resisted and considered pursuing other lenders. But MEP’s ability to validate terms with hard data proved persuasive. The final agreement reflected:
-
4.25x leverage covenant, stepping down to 3.75x after 12 months
-
2x minimum interest coverage ratio
-
$2M monthly-tested liquidity requirement
-
Restricted payments tied to performance triggers, not open-ended baskets
While minor adjustments were made around timing and reporting, the covenant structure remained intact demonstrating the power of covenant benchmarking to safeguard lender discipline while closing deals efficiently.
Why Covenant Benchmarking Matters
This was more than just a win for MEP, it highlighted a broader trend in private credit. As the market grows more competitive, lenders equipped with real-time data and covenant intelligence gain an edge in:
-
Negotiation: Countering aggressive borrower demands with evidence-based terms.
-
Risk management: Turning static ratios into predictive signals for portfolio oversight.
-
Investor transparency: Demonstrating a systematic, data-driven approach to covenant setting and monitoring.
Without access to benchmarks, even the most experienced teams risk flying blind. With covenant intelligence, lenders can validate standards, protect their positions, and move faster with confidence.
Takeaway for Credit Teams
MEP Capital’s success story is a model for how credit managers can embed benchmarking into their workflows, not just at underwriting, but throughout the credit lifecycle. From spotting early portfolio stress to strengthening LP confidence, the benefits extend far beyond closing a single deal.
To learn more about how MEP Capital leveraged benchmarking, and how your firm can replicate their success, download the full case study.
👉 [Download the Case Study Now]
