Making Sense of Continuation Vehicles
By: Javier Casillas, Global Chief Credit Officer, WhiteHorse Capital
1. Executive Summary
Opening remarks along the lines of “The Sponsor is selling the Company to itself” have raised some eyebrows and sparked some interesting debates in private credit ICs over the last few years. At WhiteHorse Capital —and across private credit more broadly—continuation vehicle (CV) deals now drive an increasingly material share of deal pipelines. This piece aims to help disentangle confusion on this topic, especially around quality of go-forward stewardship by the borrower.
In the first half of 2025, GP-led single-asset continuation vehicle volume increased approximately 68% year-over-year to ~$47 billion, highlighting sustained momentum in this segment. This significant growth reflects a structural evolution in private markets: sponsors seeking liquidity and flexibility in slower exit environments, LPs demanding distributions, and lenders encountering deals that blur the line between a buyout and a recapitalization. While the rise of CVs is a directionally positive development for credit markets, this trend also requires a sharp focus on alignment, valuation, support capital, and governance.
WhiteHorse Capital operates in the U.S. and Europe across the full spectrum of direct lending —from sponsor-backed to independent and non-sponsor situations. This cross-market perspective provides a unique view into how CVs fit within the broader ecosystem. While CVs are generally more prevalent in sponsor-backed settings, there is nothing inherently limiting their use by independent sponsors—a segment we have discussed in prior work.
Conceptually, a single-asset CV functions as a partial refinancing of the equity stack, allowing existing investors to crystallize value and new capital to enter without a full exit. Two of our recent loans illustrate our approach to structure and risk discipline. In one case, a healthcare services company was recapitalized with roughly equal parts rolled and new cash equity, with committed follow-on capital. In another, a technology integrator was transferred into a new vehicle with full GP rollover, a modest valuation step-up, and an updated governance structure. These deals resemble familiar sponsor financings but include nuances—alignment, valuation subjectivity, capital depth, and governance complexity—that should be carefully assessed.
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2. Key Issues and Evaluation Framework
On the spectrum of deal type, CVs sit somewhere between a new money buyout and a dividend recapitalization. Where a specific deal falls on that spectrum depends on several factors:
(A) Alignment and Incentives
The GP’s dual role as both seller and buyer introduces potential conflicts. Carried interest may crystallize, and new incentive structures are often established at the CV level. Alignment should be evaluated through two primary lenses: (1) the GP rollover ratio (rolled vs. crystallized value)—a high rollover (≥50%) is a credible signal of conviction; and (2) the reset of performance hurdles—which should sit materially above prior NAV marks and link to fresh value creation. In one recent market example, a technology sponsor rolled two-thirds of proceeds and reset hurdles 25% above NAV, aligning incentives with future growth. When alignment is strong, pricing can mirror traditional sponsor levels.
(B) Valuation and Validation Rigor
Most CVs transact near par to sponsor marks, therefore requiring robust validation—fairness opinions, quality of earnings (QoE), and banker feedback. This diligence should reconcile to available transaction comps within a reasonable tolerance (≤0.5x EBITDA). In one recent market example in the consumer space, valuation was supported by dual fairness opinions and banker checks showing parity with listed peers. In diligence, we recommend inquiring as to recent sale processes pursued by the borrower, focusing on valuation indications and the depth of buyer universe.
(C) Equity Depth and Commitment
A defining credit variable is whether the CV includes committed follow-on capital for growth or deleveraging. Lenders should verify evidence of prefunded or callable capital via subscription agreements or side letters. In one recent industrials transaction, 20% of total equity was prefunded for M&A, enhancing flexibility. It is also worth confirming that incremental capital is seamlessly callable by the GP (e.g., similar to how a DDTL is committed and callable for lenders).
(D) Governance and Decision Efficiency
Governance in CVs can become diffuse as multiple investor groups join the cap table. Efficient CVs feature lean boards (five to seven members) and pre-agreed voting thresholds for financings, M&A, and exits. In one recent software deal, a five-member board (three GP, one LP, one independent) allowed fast decisions. A related diligence goal is to determine the potential “value add” of new institutional investors coming into the CV, which could derive from experience in the sector or the ability to facilitate an ultimate exit.
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3. Why CVs Matter and How Lenders Should Respond
Single-asset CVs can present lenders with a steady flow of recapitalization opportunities and an expanded base of equity support that can enhance portfolio resilience. Generally, their emergence has been a positive development for direct lenders. However, their hybrid nature—part recapitalization, part secondary sale—creates both opportunity and complexity. To clarify how these deals fit into a broader portfolio, we recommend a consistent approach across the concepts above. This may require lenders to inquire into equity centric concepts that often remain “behind the curtain”, but these findings can significantly move the needle when assessing deal dynamics and opportunity quality.
Footnotes
- Lazard, Secondary Market Report 2024 (Jan 2025).
- Evercore PCA, FY 2024 Secondary Market Review (Feb 2025).
- Jefferies, H1 2025 Global Secondary Market Review (Aug 2025).
- Financial Times, “Private equity firms flip assets to themselves in record numbers” (July 2025).
- Casillas, Javier. Assessing Independent Sponsor Deals (WhiteHorse Capital, 2024).
- ILPA, Continuation Funds: Considerations for LPs and GPs (May 2023).
- Houlihan Lokey, 2024 Continuation Fund Study (May 2025).
- Lazard (ibid.).
- Bain & Company, Global Private Equity Report 2025.
- Proskauer, “Private Credit Deep Dives – Change of Control (U.S.)” (2023).
- Secondaries Investor, SI 50 (Sept 2025).