01 Test what pays the loan
“How much could I lose if things get bad?” (opens the source)
Start with cash after taxes, maintenance and working capital. Then test the covenant and estimate loss if the borrower defaults.
Credit interview prep when AI can write the loan memo
Defend the lending decision with cash flow, collateral and a reason to decline.
Start the loan caseA $12m loan under stress
| Year 1 | Cash for debt | Debt service |
|---|---|---|
| Base case | $3.50m | $2.40m |
| Downside | $1.80m | $2.40m |
Four credit decisions
02 Check what is due at maturity
Adding interest to principal can preserve cash today and leave a larger bill at maturity.
03 Test the income and the property value
“Sector selection, scale of company, seniority of capital.” (opens the source)
A senior claim still depends on the cash and collateral available to support it.
JPMorganChase describes cash flow analysis and credit structuring in its full-time commercial real estate analyst program. Commercial real estate analyst program
04 Calculate what the borrower can draw
Core & Main’s asset-based loan agreement calculates the concentration limit from otherwise eligible accounts before exclusions for concentration. Read the agreement’s denominator before applying the cap. Core & Main credit agreement
Sources
- Howard Marks, Co-chairman and co-founder, at the time. Oaktree client memo, “Fewer Losers, or More Winners?”, Sep 12, 2023. Open the source. Checked against the published text.
- Howard Marks, Co-chairman and co-founder, at the time. Oaktree client memo, “What’s Going on in Private Credit?”, Apr 9, 2026. Open the source. Checked against the published text.
- Brad Marshall, Global head of private credit strategies, at the time. Private Debt Investor, “Why bigger deals can drive bigger returns”, 2023. Open the source. Checked against the published text.
Last reviewed Nov 10, 2026