CORPORATE DEBT INSTRUMENTS
Private Debt is an important financing tool for medium-sized, growing companies to raise debt capital to meet their growth funding requirements. It’s a debt form of capital which is typically illiquid in nature because it operates outside publically traded markets. Institutional investors choose to invest in private debt opportunities because it provides stable spread which often benchmark well against equities, corporate bonds and sovereign debt. In a rising interest rate environment the added appeal of returns from private debt is the fact that they are protected from this whereas a bond return is fixed and so exposed to this risk. The equity kickers that are often attached to private debt investments provide further equity upside for investors.
Private debt finds itself in a sweet spot not simply because of the declining role of bank lending. It is also the beneficiary of two unintended consequences of changes in mainstream bond investing. The first is reduced liquidity in bond markets; evidently, it now takes seven times as long for investors to liquidate their bond portfolios. The second consequence is that there has been a shift in issuance from floating to fixed-rate bonds, favouring issuers when rates rise; as a result investors are shifting to private debt markets which still offer floating rate returns. Private debt now has all set to become an established component of institutional portfolios as it is largely considered as a credible diversification tool.
Major components of private debt (Lending strategies)
- Direct Lending: Non-bank lenders providing capital to small and medium-sized companies in the form of a secured loan rather than equity. Direct lending refers to a broad spectrum of risk profiles beyond just senior debt.
- Mezzanine: Mezzanine funding is a private loan subordinate to a senior secured loan but senior to equity in the capital structure of a company. It is typically used by middle-market companies and real estate projects to bridge the funding gap beyond their borrowing capacity from traditional banking sources. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock. Mezzanine financing is a loan to the owner with terms that subordinate the loan both to different levels of senior debt as well as to secured junior debt. But the mezzanine lender typically has a legal right enabling them to convert the security into equity at a predetermined price per share if the loan is not paid on time or in full.
- Venture Debt: These are loans provided to small companies typically startups and growth companies that do not have positive cash flows or significant assets to use as collateral. Venture debtproviders combine their loans with warrants, or rights to purchase equity, to compensate for the higher risk of default.
- Distressed Debt: Funds mostly buy senior secured loans, of companies with an impending or actual covenant default, in the secondary market at a discount to their face value. Distressed debt investing combines the best of both worlds — the cash flow of debt investments with the appreciation potential of stocks. Distressed debt generally trades at a huge discount to par value because the borrower is under financial stress and at risk of default. Distressed debt investors typically seek to make money in one of two ways: investing in turnarounds and participating in lend-to-own situations.
WHAT WE OFFER
Unifinn Global Capital offers private debt advisory services to both parties to a deal: Private Debt Investors and Borrowers:
For Private Debt Investors (GPs, LPs and other Institutional Investors)
We facilitate direct and co-investments in strong and institutional quality private debt opportunities with medium / large-sized, highly growing companies across the world. Our selection criteria of a target company is predominantly based on enhanced due diligence, extensive research of targeted market and future growth prospects, which ensure strong risk-adjusted return and long term capital appreciation to our investors. With our extensive market knowledge and experience in deal structuring, we will be able to facilitate direct investing in target companies that will stand out in your investment portfolio with best in class returns and high growth.
For Borrowers (Capital Seekers)
If you are seeking alternative debt capital to manage your growth opportunities or if you are looking to sell out your distressed debt portfolio, we have right solutions under our private debt advisory services. We have access to a large number of high-quality and diversified private debt funds around the world that will help you to meet your growth capital requirements especially when traditional banking sources fail to support you due to various reasons. Whether its senior debt financing, mezzanine funding, credit opportunities, venture debt or distressed debt, we have the solutions which really suits with your capital requirements.
Contact us to know more.