A credit memo should tell the reader what you recommend and why. A model appendix can support that argument, but it cannot replace it. Begin with the amount, instrument, decision and conditions rather than a long description of the industry.
A practical structure
- Recommendation: approve, resize, defer or decline, with conditions.
- Borrower: how revenue and cash are generated, with concentration risks.
- Earnings: the adjustments that change your view.
- Cash and liquidity: debt service, seasonal needs and maturity.
- Downside: connected assumptions and the first constraint.
- Structure and recovery: rights, priority and value assumptions.
- Outstanding diligence: owner, evidence and decision impact.
The sequence can change with the firm's format. Preserve the logic even when the template is different.
An original example opening
“Defer approval of the requested $80 million facility until the largest contract renewal and maintenance-capex requirement are verified. Underwritten EBITDA of $21 million covers the listed base-case obligations with no cash surplus. A combined operating and financing downside creates a $3 million annual cash deficit. A lower debt amount or committed liquidity could improve the structure, but neither replaces evidence of repeatable cash generation.”
This paragraph identifies a decision, evidence and conditions. It does not claim that a sponsor's reputation or a first-lien label resolves the risks. The underlying fictional case is shown in the cash-flow modeling guide.
Replace vague claims with evidence
| Vague phrase | More useful information |
|---|---|
| Ample liquidity | Unrestricted cash, usable facilities and the stressed trough |
| Strong downside protection | Recovery range, priority and collateral assumptions |
| Attractive recurring revenue | Renewal, churn, concentration and collection evidence |
| Manageable leverage | Earnings definition, cash coverage and maturity plan |
Keep facts, estimates and judgments distinct. A signed renewal differs from management's expectation that a customer will renew. A permitted covenant adjustment differs from cash available for debt service.
Practice the committee challenge
After writing the memo, answer: What single assumption would reverse your recommendation? What is the strongest argument against your view? Which diligence item must be resolved before a commitment, and which can be monitored afterward?
Do not force an approval merely because the exercise supplies a proposed transaction. A clear decline or deferral can be defensible if the risk cannot be addressed with the information and terms provided.
The Private Credit Underwriting Workbook includes two capstones, full numerical answers and a memo worksheet. Pair it with the existing interview questions and resume guide to connect preparation with your actual experience.