Workout
Private Credit glossary · Portfolio Management, Monitoring & Workouts
Definition
Process of resolving a defaulted loan, typically running 12–36 months and ending in one of four outcomes: (i) covenant waiver/amendment with concessions (waiver fee, +25–100 bps spread, tighter covenants), (ii) restructuring (maturity extension, principal haircut, debt-for-equity swap, lender takes the keys), (iii) Chapter 11 reorganization, or (iv) liquidation/Section 363 sale. Senior secured first-lien recoveries average ~70% in middle-market workouts versus ~20–40% for second-lien/mezzanine.
Workout in plain English
A workout is the messy cleanup process after a borrower defaults — the lender and company working out how to actually recover the money, usually over one to three years. It can end four ways: the lender agrees to relax the loan's rules in exchange for fees and a higher interest rate; they restructure the deal (stretch the deadline, forgive part of the debt, or swap debt for ownership — sometimes 'taking the keys' to the business); the company files Chapter 11 bankruptcy to reorganize; or everything gets sold off in a liquidation. How much the lender gets back depends heavily on their spot in line: first-in-line 'senior secured' lenders recover around 70 cents on the dollar in mid-sized deals, while riskier junior lenders often see just 20 to 40 cents. It's like a landlord dealing with a tenant who can't pay — you can renegotiate, agree on a payment plan, or ultimately repossess and sell what's there, and the first person owed always gets paid before the rest.
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