7.1 Private Debt: Introduction Flashcards
Private debt refers to debt financing instruments provided primarily by … outside the banking industry.
What does the Private Debt universe consist of?
Real Estate ->
Infrastructure ->
private-sector institutional investors
corporate sponsored/unsponsored
distressed
Explain the differences between public and private debt markets
Instrument: Bonds (treasury, corporate bonds) vs Loans ( real estate loans, private loans)
issuers: Govt, Corp, Municipalities VS ….
Arranged by: Banks vs ….
Valuation and Credit spreads: ….
Liquidity: High-Moderate VS LOW
Typical target return: See slides
Sources of alpha: …..
Corporates, Special Purpose Vehicles
Investment Managers
Observable in market vs non-observable
credit assessment/spread VS Asset assessment, Quality of risk assessment, Cost & Efficiency of arranging and monitoring
On which grounds are there differences between corporate credit and asset backed finance? (need to research what’s meant by asset-backed finance)
Example: Legal separation
Check Slide 8 for details
Borrower Credit Risk
Principal Repayment Risks
Debt service & Corporate Risks
Underlying cash flow risks
Inflation Risks
Private Debt landscape has become more diverse in the past decade
(in 2000s) Regulated: Banks, Asset Managers, Institutional Investors
(in 2010s) Varying level of regulation: Banks, Asset Mgrs, inst. investors
- private debt funds, …, Joint ventures, …
- …, online private placement, invoice …
Direct lending funds
partnerships
p2p lending platforms
invoice exchange markets
New alternative lenders have entered the market in the past decade
(in 2000s)Traditional lenders: Bank, most regulated–> ….., increasing ….
(in 2010s) Alternative lenders
1. Non-bank lenders: regulated–>…,….
2. Not yet regulated: … (Lending circle)
regulated banks operating under a license
increasing scrutiny at all levels
Asset Mgrs (AXA, BNP Paribas IP), Institutional Investors (PGGM)
fintech players w/ p2p lending attracting capital without licenses
