Measuring the value of private debt against its cost
Paul Lisiak and Daniel Leger discuss how lenders focused on asset risk rather than pure credit risk are liberated from refinancing cycles
Private credit's lending practices remind one of the old quip that an economist is a person who knows the cost of everything, but the value of nothing. But how do lenders measure true value creation beyond yield and spread?
In this analysis for Private Debt Investor, Metropolitan's CIO Paul Lisiak and Senior Managing Director Daniel Leger examine a fundamental shift in how sophisticated lenders evaluate private debt investments. The key insight: lenders focused on asset risk rather than pure credit risk are liberated from the cycle of refinancings that constrain traditional approaches.
"The value of debt is the marginal revenue productivity that will result from the assumption of new debt," Lisiak and Leger explain. This framework—what they call MRPD (Marginal Revenue Productivity of Debt)—informs every loan decision at Metropolitan and provides a lens for identifying compelling businesses at critical inflection points.
The article explores why MRPD-positive lending scenarios create value not just for portfolio companies, but for investors beyond what can be found in the beta-oriented portfolios of sponsor-backed lenders. It examines the unique advantages of the non-sponsored US lower mid-market, where opportunities abound for precisely this form of lending, and why challenges in the macro picture make resourceful thinking more valuable than ever.
The full Expert Commentary is available for download by clicking the Download PDF button above.