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

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