Private debt comprises mezzanine and other forms of debt financing that comes mainly from institutional investors such as funds and insurance companies – but not from banks. ... Senior debt refers to first ranking, secured loans used to finance buyout transactions and growth funding. In contrast to publicly listed corporate bonds, private debt instruments are generally illiquid and not regularly traded on organized markets.
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Senior debt refers to first ranking, secured loans used to finance buyout transactions and growth funding. Returns are generated almost exclusively by the current interest payments.
Mezzanine is an intermediate form between debt and equity. It is used mainly for buyouts and growth finance and is often subordinated to bank debt. Returns are made up of several components; primarily current and final interest payments, as well as warrants for shares in the company being acquired, known as "equity kickers".
Credit opportunities funds invest in a wide variety of financing structures and situations. Alongside complex refinancing of companies who are cut off from capital markets for various reasons, the funds also specialize in secondary transactions.
THERE ARE FOUR MAJOR REASONS WHY INSTITUTIONAL INVESTORS SHOULD INVEST IN PRIVATE DEBT:
1. Attractive, stable spreads : Private debt and mezzanine offer attractive spreads over sovereign debt, corporate bonds and high yield securities.
2. Low correlation with other asset classes’ : Low correlation with traditional asset classes provides positive diversification.
3. Risk reduction : Stable performance across all market cycles thanks to combination of different credit strategies.
4. Well-established asset class : The asset class has highly experienced fund managers with verifiable track records and differentiated investment approaches.