Private debt refers to loans to companies which are not provided by banks or public markets, and instead are provided by private investors and private markets.
The demand for private debt has grown since the 2008 financial crisis as banks have reduced their lending activity (particularly to SMEs). Private debt can be an attractive alternative to bank finance as it can be structured more flexibly, to suit the needs of the borrower.
Investing in private debt offers the opportunity to target yield, through interest payments, and potentially an uplift in the capital value of the company borrowing the money (depending on the structure of the deal). As debt is a lower-risk asset class than equity, the returns are expected to be more modest than the returns from private equity investment.
At Connection Capital we are able to provide flexible debt packages of between £3m and £10m to UK SMEs.