Four main categories of private debt
- Direct lending
- Mezzanine loans
- Venture debt:
- Distressed debt
Direct lending
- private lending to companies in the form of loans as opposed to equity
Mezzanine loans
- subordinate to senior secured debt but are senior to equity holders
- get the second claim on assets in the event of a bankruptcy
Venture debt
- loans to growing companies with low or negative free cash flow
- Usually provided to a start-up or a smaller company
- Mostly will be convertible to equity or have some sort of equity upside
Distressed debt
- loans to companies that may have a difficulty meeting its debt covenants
- or in the process of bankruptcy
- or is basically distressed in some way
Private equity firms have raised private debt funds to offer credit solutions to target companies
- Given the flexibility of private debt in contrast to a traditional commercial loan
- Examples: KKR private credit opportunities, $2.4B, 2018