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The article in brief:

• Transactions involving the transfer of loans between related investment vehicles, including Season & Sell structures, are receiving increased regulatory and international investor attention, increasing the importance of valuation at the time of transfer.
• Conventional pricing approaches, such as those based on original issue discount (OID), may be used as reference points; however, valuation analyses may also consider current market spreads, credit quality, and expected cash flows at the time of transfer.
• Independent valuation analyses help participants with good internal governance procedures, documentation, and the assessment of whether pricing of these transactions is consistent with prevailing market conditions and fair value principles.

As the private credit markets continue to evolve, transactions involving the transfer of loans between related investment vehicles have become an area of increased focus for investors and regulators. These transactions, which may occur within multi-fund platforms serving different investor bases, introduce additional considerations related to governance, documentation, and valuation.

The continued growth of global investor participation in private credit strategies has contributed to the increased use of structures designed to accommodate different investor types. At the same time, investors and regulators have placed greater emphasis on transparency, consistency, and documentation in transactions involving affiliated vehicles. In this environment, greater attention is being given to how valuation practices are applied at the point of transfer.

Season & Sell transactions are one example of this broader category. In these structures, loans originated in one vehicle are subsequently transferred to another within the same platform after a defined holding period. In this context, valuation at the point of transfer has taken on increased importance as part of a broader effort to support consistency with fair value principles and align with investor expectations.

Season & Sell Transactions in Practice

Season & Sell transactions are commonly used within private credit platforms that serve investors with different regulatory considerations. Structuring decisions are determined by the investment manager and its advisors.

In these arrangements, a U.S.-based vehicle originates and initially holds a loan before offering it for sale to an affiliated offshore vehicle after a defined holding period, often referred to as a “seasoning” period. The offshore vehicle, typically representing non-U.S. investors, evaluates whether to acquire the loan based on its investment mandate and the proposed transaction terms.

While the mechanics of these structures are generally well understood, the transfer of assets between related parties introduces additional considerations. These include evaluating whether the transaction reflects prevailing market conditions and whether the process is consistent with fund documentation, valuation policies, and broader governance frameworks.

Why Valuation Matters at the Point of Transfer

Regulators and investors have increased their focus on private credit strategies, particularly where transactions occur between related vehicles or cross-border structures. Recent regulatory developments have heightened focus on valuation practices in these contexts, reinforcing the importance of consistency with stated policies and current market conditions.

In evaluating these transactions, it is important to distinguish between fair value, transaction price, and other pricing conventions. Fair value, as defined under applicable accounting standards, reflects the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The transaction price in an affiliated transfer may reflect additional considerations, including fund mandates, timing, or investor-specific factors. As a result, the transaction price may differ from an independently assessed fair value, and understanding these distinctions is an important component of the valuation analysis.

Conventional pricing approaches, such as those based on original issue discount (OID), may be used as reference points. From a valuation perspective, these approaches may be supplemented by analyses that consider current market spreads, credit quality, expected cash flows, and comparable transactions. Changes in these inputs during the holding period may affect how market participants would price the asset at the point of transfer.

Depending on the characteristics of the loan, valuation approaches may incorporate discounted cash flow analyses, market yield comparisons, or other income- and market-based methodologies commonly applied in private credit valuation.

The Role of Independent Valuation

An independent valuation at the time of transfer may provide an objective perspective on the fair market value of the assets in a current market and review of the fundamentals of the borrower. This analysis can be particularly relevant in transactions involving related parties, where additional governance and fiduciary considerations may apply.

In a Season & Sell transaction, the valuation process does not establish the transaction price. Rather, the investment manager determines the final price in accordance with fund documentation, fiduciary obligations, and investor governance requirements. The valuation serves to inform the assessment of the fair market value and to enhance documentation and transparency around the decision-making process.

In practice, incorporating an independent valuation perspective can assist with:

• Assessing manager assumptions compared to the proposed transaction price
• Supporting internal decision-making processes
• Enhancing documentation and audit readiness
• Providing additional transparency to investors and other stakeholders

Conclusion

Transactions involving the transfer of loans between related investment vehicles, including Season & Sell structures, remain a feature of private credit markets serving global investor bases. As market conditions evolve and expectations around regulation and governance continue to develop, valuation at the point of transfer plays a key role in supporting consistency, transparency, and alignment with fair value principles.

By incorporating current market evidence, maintaining clear documentation, and considering independent valuation perspectives, managers can better support their decision-making processes and meet investor and regulatory expectations.

Note: This article is for informational purposes only and does not constitute legal or tax advice. Readers should consult their own advisors regarding their specific circumstances.