L.O.T.W. #155 - Lord Abbett's Got Back [Leverage]
A closer look at Lord Abbett PCF Financing 2's back leverage revolving facility provided by Royal Bank of Canada
In December 2025, Lord Abbett PCF Financing 2 LLC, a wholly-owned, special purpose financing subsidiary of Lord Abbett Private Credit Fund (a Delaware statutory trust regulated as a BDC under the 1940 Act), entered into a $300 million* senior secured revolving credit facility with Royal Bank of Canada as administrative agent and lender. The facility is a classic “back leverage” structure for a private-credit BDC: the BDC originates and contributes loans into a bankruptcy-remote SPV; the SPV pledges those loans as collateral and borrows against them on a non-recourse basis.
*amended to $400 million on April 23, 2026
👓At a Glance
Origination Date: December 1, 2025 (subsequently amended on April 23, 2026)
Borrower: Lord Abbett PCF Financing 2 LLC
Collateral Manager: Lord Abbett Private Credit Fund
Collateral Agent & Custodian: Computershare Trust Company
Lender: Royal Bank of Canada (“RBC”)
Deal Size: Originally $300 million; upsized to $400 million in April ‘26
Structure: Senior secured revolving credit facility (”back leverage”) with multi-currency capability, 36-month reinvestment period, and 24-month post-reinvestment amortization
Rate: Floating rate benchmark per applicable currency + applicable margin of 1.60% / 1.80% / 2.00% per annum, depending on collateral category; 0.00% benchmark rate floor
Term: 60 month total term; 36 month revolving reinvestment period
Use of Proceeds: Acquisition of eligible loans from Lord Abbett Private Credit Fund; general business purposes of the SPV
Source: SEC 8-K
📷Borrower Snapshot
Sector: Financial Services
Subsector: Private Credit / Business Development Company (BDC)
Ownership: Borrower SPV: wholly owned by Lord Abbett Private Credit Fund; Parent Fund: non-traded BDC; common shares not listed on a national exchange
Commercial Stage: Total Investments at Fair Value - $1.3 billion as of 12/31/2025; 2025 Total Investment Income - $83.9 million; Net Investment Income - $41.1 million
Business Overview: Lord Abbett Private Credit Fund is a non-diversified, closed-end management investment company that elected to be regulated as a Business Development Company under the 1940 Act on October 4, 2024. It is externally managed by Lord Abbett Private Credit Advisor LLC, a wholly-owned subsidiary of Lord, Abbett & Co. LLC. The Fund’s investment objective is to generate current income and, secondarily, long-term capital appreciation by primarily focusing on directly originated, senior secured loans to U.S. middle market companies (private operating companies and public companies with market capitalization below $250 million). As of December 31, 2025, the Fund held investments in 45 portfolio companies with total investments at fair value of approximately $1,310 million (cost ~$1,312 million). Portfolio composition: 93% first-lien secured debt, <1% second-lien, <1% equity, and ~5% in the SBLA Private Credit LLC joint venture (with Stifel Bank & Trust); 100% of debt investments at floating rates; 0% on non-accrual.
Portfolio metrics as of 12/31/2025: Median 12-month EBITDA $76 million; weighted average net leverage 4.7x; weighted average loan-to-value 42%; weighted average interest coverage 2.2x; weighted average yield on debt investments at cost 9.3%.
⚙️Structure & Terms
Source: SEC 8-K
Commitment: $400 million revolving credit facility; 36-month reinvestment period and 24-month post-reinvestment amortization
Maturity: December 1, 2030
Currency Capability: U.S. Dollars or certain other permitted currencies (Canadian Dollars, Sterling, Euros, Australian Dollars, with corresponding RFR / Eurocurrency benchmarks: SOFR / CORRA / SONIA / EURIBOR-equivalent)
Rate: Floating rate per annum applicable to the currency, plus applicable margin (see below); rate floor of 0.00% per annum
Applicable Margin:
Broadly Syndicated Loan - 1.60% per annum
Private Credit Loan - 1.80% per annum
Senior Secured Bond - 2.00% per annum
Advance Rate Grid:
Broadly Syndicated Loan, Purchase Price > 85.00 - 75.00%
Broadly Syndicated Loan, Purchase Price ≤ 85.00 - 70.00%
Senior Secured Bond - 72.50%
Private Credit / First Lien Loan: First-Out Attachment Ratio ≤ 7.00x AND Obligor LTM EBITDA ≥ $100M - 72.50%
Private Credit / First Lien Loan: First-Out Attachment Ratio ≤ 6.00x AND Obligor LTM EBITDA between $25M and $100M - 70.00%
Private Credit / First Lien Loan: First-Out Attachment Ratio ≤ 6.00x AND Obligor LTM EBITDA < $25M - 65.00%
Private Credit / First Lien Loan: First-Out Attachment Ratio between 6.00x and 7.00x AND Obligor LTM EBITDA between $25M and $100M - 40.00%
First Lien Last-Out Loan - 55.00%
Recurring Revenue Loan - up to 55.00% (administrative agent sole discretion)
Second Lien Loan - 40.00%
Asset Category Definitions:
Broadly Syndicated Loan: Large, liquid, broadly held senior secured term loan typical of the BSL market.
Private Credit Loan: Middle-market, directly originated, illiquid first-lien loan — the Fund’s strategic focus.
First Lien Last-Out Loan: Unitranche-style first-lien loan subject to a payment-priority intercreditor that subordinates it to a “first-out” tranche.
Second Lien Loan: Subordinated lien, with explicit second-priority intercreditor protections in the LSA.
Recurring Revenue Loan: First Lien Loan underwritten on Recurring Revenue (not EBITDA), with the Obligor in a high-growth industry, LTV ≤ 40%, trailing 12-month Recurring Revenue ≥ $25M, and Net Debt to Recurring Revenue ≤ 3.0x.
Senior Secured Bond: Senior secured note-format obligation (Moody’s “B3” / S&P “B-” minimum, or the Obligor itself meeting that threshold).
Other Notable Mechanics:
Reinvestment Period: During the 36-month reinvestment period, the borrower may borrow, repay, and re-borrow advances, subject to satisfaction of the borrowing base, minimum equity amount test, and collateral quality tests. Each funding notice must include a pro forma borrowing base certificate.
Post-RPED Amortization: Following the reinvestment period end date (RPED), all collections are applied first to operating priorities and then pro rata to repay advances outstanding until paid in full. The lenders are not obligated to make new advances after the RPED.
Borrower Interest Coverage Ratio: Interest waterfall mechanic — during the reinvestment period, principal collections may flow to the interest collection account in an amount necessary to cause the borrower interest coverage ratio to be at least 120%.
Revaluation Events: Extensive loan-level credit-event triggers that knock loans out of the borrowing base or trigger mark-downs, including Obligor payment default (5 BD cure period), insolvency event, material modification not approved by RBC, obligor cash interest coverage ratio < 1.50x AND ≤ 80% of original, net senior leverage ratio > 1.00x higher than original, failure to deliver financial statements within 30 days of due date, cash interest rate < Benchmark + 2.25%, broadly syndicated daily market value 10% below initial purchase price, and recurring revenue declines or LTM RR falling below $25M.
Covenants:
Maintenance Covenant: Positive tangible net worth at all times (no quantitative threshold disclosed in 8-K narrative; standard fund-finance maintenance test).
Borrowing Base Test: advances outstanding may not exceed the borrowing base on any date of determination. Any borrowing base deficiency triggers a mandatory paydown — the next dollar of interest collections and principal collections (after senior priorities) is applied to the advances outstanding until the Deficiency is reduced to zero.
Minimum Equity Amount Test: First-loss equity in the SPV must satisfy the required equity investment formula at all times - tested as a condition to each advance.
Collateral Quality Tests: Pro forma compliance required as a condition to each advance; collateral quality test definition, which typically includes weighted average coupon / spread, weighted average life, weighted average advance rate, and concentration limits by industry, single obligor, and asset category.
Borrower Interest Coverage Ratio: During the reinvestment period, the waterfall directs principal collections to the interest collection account in an amount necessary to keep the borrower interest coverage ratio at or above 120% - functionally a soft covenant manifested as a waterfall mechanic.
Disclosed Fees:
Non-usage Fee:
(i) None for the first 9 months after Closing Date;
(ii) From the 9-month anniversary to RPED: a daily-pricing waterfall calculated as (1/360) × applicable rate × (target utilization shortfall), where applicable rate is
1.25% when advances outstanding < 50% of facility amount,
0.75% when advances outstanding ≥ 50% but < 75%, and
0.00% when advances outstanding ≥ 75%;
(iii) No non-usage fee from RPED to termination date