Private credit, also known as direct lending, refers to debt financing extended by non-bank lenders to companies. This alternative finance solution has grown...
Private credit involves direct lending from non-bank institutions (e.g., investment funds, asset managers) to businesses, typically in bespoke financing arrangements outside of public markets.
Private credit often offers more flexible terms, faster execution, and higher yields compared to traditional bank loans. It's less regulated and tailored to specific borrower needs, often involving complex structures.
Key participants include institutional investors (pension funds, insurance companies), asset managers, specialized private credit funds, and mid-market companies or private equity-backed firms as borrowers.
Investors benefit from higher yields, floating-rate structures (offering inflation protection), diversification away from public markets, and enhanced control through bespoke loan agreements.
Risks include illiquidity, less transparency compared to public debt, credit risk from borrowers, and potential for stricter loan covenants that can impact asset recovery in default scenarios.