PEINVEST
Non-bank lending to companies through direct lending, mezzanine, and specialty finance strategies.
Private credit encompasses all non-bank, non-publicly traded lending activities. The asset class has grown dramatically as banks have retreated from middle-market lending due to regulatory capital requirements. Direct lending (senior secured loans to sponsor-backed companies) is the largest sub-strategy, offering floating-rate returns with first-lien security. Other strategies include mezzanine lending (subordinated debt with equity upside), distressed credit (purchasing impaired debt at discounts), specialty finance (asset-backed lending, royalties, litigation finance), and venture debt. Private credit offers several advantages: higher yields than liquid credit, customized deal structures, stronger covenants, and lower mark-to-market volatility.
Bank regulatory reform (Basel III/IV) increased capital requirements for bank lending, creating a gap filled by private credit funds. Additionally, PE sponsors prefer the certainty of execution, speed, and flexibility offered by private lenders over broadly syndicated markets.
Direct lending involves making loans directly to middle-market companies (typically $10M–$500M EBITDA), usually in connection with PE buyout transactions. These are typically senior secured, floating-rate loans with comprehensive covenant packages. Direct lenders can underwrite and hold entire facilities rather than syndicating.
Private credit loans are negotiated bilaterally (not publicly traded), offer higher yields (200-400bps premium), include stronger covenant protections, provide customized structures, and have lower mark-to-market volatility. However, they sacrifice liquidity and price transparency.