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Types of Private Debt

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Types of Private Debt

Senior secured loans

Senior secured loans are the most basic type of private debt and are typically used to finance the day-to-day operations of a company. These loans are secured by the assets of the borrower and are the first to be paid in the event of a default. Senior secured loans typically have a fixed interest rate and a maturity of 3-5 years.

Mezzanine debt

Mezzanine debt is a type of private debt that sits between senior debt and equity in a company’s capital structure. Mezzanine debt is typically unsecured and is higher risk than senior debt, but offers higher returns. Mezzanine debt can take the form of subordinated loans, preferred stock, or convertible debt.

High-yield bonds

High-yield bonds, also known as junk bonds, are bonds that are rated below investment grade by credit rating agencies. They offer higher yields than investment-grade bonds, but are considered to be higher risk. High-yield bonds are typically used to finance leveraged buyouts, acquisitions, and other growth initiatives.

Distressed debt

Distressed debt refers to the debt of companies that are in financial distress, such as those that are in bankruptcy or are facing the risk of default. Investing in distressed debt can offer attractive returns, but also carries significant risk. Distressed debt can take the form of bonds, loans, or other securities.

Infrastructure debt

Infrastructure debt is a type of private debt that is used to finance the construction, expansion, and maintenance of infrastructure projects, such as roads, bridges, airports, and power plants. Infrastructure debt is typically secured by the assets of the project and may be backed by government guarantees.

Real estate debt

Real estate debt is a type of private debt that is used to finance commercial and residential real estate projects. Real estate debt can take the form of mortgages, mezzanine loans, and construction loans.

Untrenched debt

Untrenched debt is a type of private debt that combines both senior and mezzanine debt into a single loan. Untrenched debt can be more flexible than traditional debt structures, and can be used to finance a variety of different types of transactions, such as leveraged buyouts, growth financings, and recapitalizations.

Direct lending

Direct lending is a type of private debt that is provided directly by institutional investors to companies, typically smaller and middle-market businesses. Direct lending is typically used to finance working capital, growth, and acquisitions, and can be structured as term loans, revolving credit facilities, or a combination of the two. Each type of private debt has its own set of characteristics, risks, and potential returns. Investors should carefully evaluate the specific investment opportunity and conduct thorough due diligence before committing any funds.

Distribution of Private Debt Investments by Sector chart
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