23 May Introduction to Private Credit – Market Overview and Analysis
Introduction to Private Credit, by Voya Investment Management
There are several investment types that fall into “private credit” including private placements, senior loans, distressed debt, and mezzanine finance. What we will discuss is the “private placement” section of the private credit market. Private placements are essentially long- term loans to corporations, 90% of which are investment grade. Borrowers utilise the private placement market for a variety of reasons: to maintain confidentiality of their financials, to obtain more flexible terms than offered by the public market or to borrow money when their credit histories are more complex in nature. The borrowers use the proceeds to finance acquisitions, refinance existing debt, support business expansions and other general business purposes.
Functionally, a private placement is a hybrid of a public bond and a traditional bank loan. Characteristics shared with public bonds include a fixed rate structure and term length. Similarities with bank loans include greater upfront due diligence, priority debt and financial covenant protection and a more intensive ongoing relationship with borrowers.