- Private Credit: A type of debt financing where loans or credit are provided by non-traditional lenders, such as private equity firms, hedge funds, or direct lending funds, to businesses or individuals.
- Direct Lending: The practice of providing loans directly to businesses or individuals, bypassing traditional banks or financial institutions.
- Mezzanine Financing: A hybrid form of financing that combines both debt and equity, often used by private credit providers to support companies with high growth potential.
- Private Equity: Investment in private companies by private credit providers, often involving a stake in the ownership and control of the company.
- Distressed Debt: Debt securities of a company that is facing financial difficulties, often purchased by private credit investors at a discount.
- Senior Debt: Debt that has a higher priority for repayment in the event of a company’s liquidation or default, making it less risky for private credit investors.
- Subordinated Debt: Debt that has lower priority for repayment than senior debt, typically carrying higher interest rates to compensate for the increased risk.
- Leverage: The use of borrowed funds to invest or finance an investment, a common strategy in private credit.
- Covenant: A legal provision in a debt agreement that specifies the terms and conditions that the borrower must adhere to, often related to financial performance and debt repayment.
- Default: When a borrower fails to meet the agreed-upon obligations of a debt contract, such as missing interest payments or not repaying the principal.
- Yield: The return on investment for a private credit investment, often expressed as an annual percentage.
- Credit Risk: The risk that a borrower may default on their debt obligations, leading to potential losses for the lender.
- Due Diligence: The process of thoroughly investigating a potential borrower’s financial health, operations, and creditworthiness before extending private credit.
- Liquidity: The ease with which an investment can be converted into cash, which is often lower in private credit compared to publicly traded securities.
- Debt Restructuring: A process in which the terms of a debt agreement are modified to accommodate a distressed borrower’s financial situation.
- Credit Facility: A formal agreement that outlines the terms and conditions of a loan or credit extended by a private credit provider.
- Collateral: Assets or property that a borrower pledges as security for a loan, which can be seized by the lender in the event of default.
- Coupon Rate: The interest rate paid to the lender by the borrower on a debt investment, typically expressed as a percentage.
- Lien: A legal claim on a borrower’s assets, often used to secure a private credit investment.
- Amortization: The process of paying off debt over time, typically through regular payments of both principal and interest.