Why monitoring is where credit funds win or lose
In private credit, returns are made at underwriting but protected in monitoring. Covenants are the early-warning system you negotiated for. If nobody tests them on time, you only find out about trouble when the interest payment is late, and by then your options are fewer and more expensive.
LPs know this. Operational due diligence questionnaires increasingly ask how you track covenants, how quickly you escalate a breach and how you evidence it. "Our analyst has a model" is not a comforting answer.
What to track for each borrower
- Financial covenants: leverage, interest cover, DSCR, minimum net worth, whatever the term sheet specifies.
- Information covenants: monthly or quarterly financials, stock statements, auditor’s reports, due dates.
- Conditions subsequent: security creation, filings, insurance, with dates and evidence.
- Security and collateral: valuations, cover ratios, top-up triggers.
- Operating signals: promoter changes, key customer losses, delays in statutory dues.
- Exposure: your outstanding, headroom to concentration limits, sector and group exposure.
A monitoring rhythm that actually holds
Most funds don’t lack a policy. They lack a rhythm. A workable one looks like this: borrower data requested automatically ahead of each due date, reminders when it’s late, covenant tests calculated the day the data arrives, and anything near a threshold sent to the deal owner and risk before it becomes a breach.
Then a short monthly portfolio review with a watchlist, decisions recorded, and actions assigned with dates. It’s boring. Boring is the point.
Early-warning signs worth a flag
- Borrower reporting arriving later each quarter.
- Covenant headroom shrinking for two periods in a row, even if not yet breached.
- Requests to change the drawdown schedule or delay security creation.
- Auditor qualifications or a change of auditor.
- Stretch in statutory dues or supplier payments.
Spreadsheet, specialist tool or configurable platform?
Spreadsheets are fine for five borrowers. They struggle at twenty and break at fifty, mostly because nobody can see who changed what and when. Global portfolio monitoring products are strong but often priced and designed for large international funds.
A configurable workflow platform is a practical middle ground for Indian credit AIFs and venture debt funds. On Averoic, a fund can set up borrower reporting requests, covenant and condition tracking, watchlists, escalations and exposure dashboards, with maker-checker on waivers and a tamper-evident audit trail, and connect it to the IC and drawdown workflows that come before it.
Works with alternative lenders, AIFs, NBFCs and insurers in India on approvals, maker-checker controls and audit readiness.
See how your own process would run on Averoic — configured, not coded, with maker-checker controls and a tamper-evident audit trail built in.
Frequently asked questions
What is covenant monitoring in private credit?
It is the ongoing process of collecting borrower financial and information reporting, testing it against the covenants in the loan agreement (such as leverage, interest cover or DSCR), tracking conditions subsequent, and escalating any breach or near-breach to the deal team and risk.
How often should a credit fund test covenants?
At least as often as the loan agreement requires borrower reporting, usually monthly or quarterly, with tests run as soon as the data arrives and reminders when it is late.
Can Indian private credit funds automate portfolio monitoring without a custom build?
Yes. A no-code governed platform such as Averoic can run borrower reporting requests, covenant and condition tracking, watchlists, escalations and exposure dashboards, with maker-checker on waivers and a tamper-evident audit trail.