Understanding Private Debt
Private debt refers to loans provided by private entities like banks and firms, catering to individuals or businesses instead of public institutions. These loans come in various forms such as personal loans, business loans, and corporate bonds, aiming to provide financing sources.
Common Types of Private Debt
Private debt loans vary, but some common structures include term loans, revolving credit facilities, and convertible debt arrangements. Each type offers unique borrowing terms and repayment schedules to suit different financial needs.
The Rise of Private Debt
Private debt gained prominence after the 2008 Global Financial Crisis, filling the void left by traditional banks tightening lending standards. It has since become a significant player in alternative lending, offering diverse options and attracting a wide investor base.
Private Debt in the Capital Structure
In the capital structure, debt ranks above equity, meaning debt holders are repaid before equity holders in bankruptcy scenarios. Senior debt, with the highest priority, offers lower risk and lower returns. Mezzanine debt, while still above equity, carries higher risk but potentially higher rewards.
Exploring Senior and Mezzanine Debt
Senior debt holds the first priority for repayment in bankruptcy and is typically secured by collateral, offering lower risk but lower returns. Mezzanine debt, on the other hand, ranks lower in repayment priority but may offer higher returns due to increased risk.
Rathi
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