Private Credit

Private credit funds lend to companies that need financing for:

• Acquisitions

• Expansion

• Refinancing debt

• New equipment

• Working capital

Investors earn returns through interest, fees, and sometimes equity kickers.

 

Private Credit can be Loans:

• Senior secured: highest priority, collateral-backed

• Unitranche loans: blended interest rate combining senior + junior debt

• Subordinated debt: lower priority but higher yield

• Convertible debt: can convert to equity in certain situations

 

Common loan features include:

• Covenants (financial requirements)

• Interest rate floors

• Origination fees

• Prepayment penalties

 

Returns Are Generated From:

• Cash interest payments (often quarterly)

• Origination and arrangement fees

• Prepayment or exit fees

• Equity warrants or options (in certain strategies)

Private credit tends to produce steady, predictable income.

 

Core Strategies 

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1. Direct Lending

Loans directly to mid-sized private companies.
Often used in private equity buyouts.

Benefits:

• Regular interest

• Strong collateral

• Contractual return profile

2. Mezzanine Debt

Hybrid of debt and equity:

• Higher interest rate

• Subordinated to senior lenders

• Often includes equity kickers

Used in:

• Expansion

• Acquisitions

• Generational business transitions

3. Distressed Debt

Buying debt of companies facing financial difficulty.

Strategies include:

• Loan-to-own: buying debt to gain control in restructuring

• Trading distressed bonds

• Providing rescue financing

4. Asset-Based Lending

Loans backed by:

• Inventory

• Equipment

• Real estate

• Receivables

Often used in retail or industrial companies.

5. Specialty Finance

Niche areas such as:

• Litigation finance

• Aircraft leasing

• Consumer lending portfolios

• Royalty financing