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Private Credit

What is Private Credit?

Loans are customised to meet the specific needs of borrowers, lenders, or investors, often involving complex features and arrangements. Key characteristics include:

Customised Terms: Tailored conditions like flexible repayments, variable rates, or unique collateral.
Complex Structures: May include multi-tranche financing with varying terms and repayment priorities.
Collateralised: Secured by specific assets or revenue streams.
Risk Mitigation: Designed to reduce risks such as credit, interest rate, or currency risks through risk-sharing or hedging.
Securitisation: Loans may be pooled and sold as securities, like asset-backed securities (ABS) or collateralized loan obligations (CLOs).
Specialised Borrowers: Often used in industries with unique financing needs, such as real estate, project finance, or leveraged buyouts.

Structured loans are arranged by banks, financial institutions, or private lenders for situations where standard loans are insufficient, allowing for customised financing solutions.

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When to use Private Credit

Structured credit products are best suited for investors who understand their complexities and can handle the associated risks. Here’s a concise overview:

Institutional Investors: Such as pension funds, insurance companies, and hedge funds, with the expertise to analyse and manage the risks of structured credit products.
Sophisticated Investors: high-net-worth individuals and family offices looking for higher returns and able to absorb potential losses, benefiting from the diversification structured credit offers.
Retail Investors with Professional Advice: Retail investors, under the guidance of financial advisors, may consider structured credit products for higher yield opportunities, provided they have a high degree of financial literacy and understand the risks involved.

Private Credit case study

Food and beverage manufacturer expanding to new territories with private credit

Enabled a food and beverage corporation's Western Europe expansion with a £6.5 million unitranche private credit facility, overcoming traditional financing barriers. This strategic private credit solution provided essential capital for growth without diluting equity, showcasing innovative financial advisory in accessing private credit markets.

Process and timeframe

Document Collection & Deal Sheet

Identify your target acquisition based on strategic objectives & engage them to ascertain if there is a fit.

Indicative offers

If there is a fit, any funding gap will need to be identified & a strategy put in place to fund it.

Analysis & decision

Once funding is feasible, terms must be negotiated with the vendor. Upon agreeing to a letter of intent, a period of 6 weeks to 6 months follows to finalise the deal.

Due diligence & credit process

Ensuring thorough vetting and alignment of interests with these partners will greatly enhance the efficiency and effectiveness of the due diligence process.

Credit backed offer & legals

Alongside the due diligence, the funding facility deal will be being set up & you will need this in place and ready to go for completion.

Completion

As the deal completes, the corks pop & the fun begins...

Need to know & FAQs

Need to know:
Private credit can take many forms, and can be many different things to many different people. As advisors, we would absolutely advocate for understanding the options thoroughly before entering into a facility. Often just a tweak of structure will materially affect price and ‘ease’ of any facility.

Private Credit covers everything - what types of facilities are out there?

There are all manner of private credit solutions for growing businesses; working capital, venture debt, growth loans, and many lenders can be innovative and bespoke in their structure & offering. Each lender has different nuances. It can be a real minefield to find what suits your business.

How long does it take to setup a private credit facility?

This is a ‘how long is a piece of string’ question, but realistically, if you can provide all the information timeously to lenders it should be within 4-8 weeks of placing an application.

What matters most to lenders during the application process?

Cashflow & security - can their facility provide you with the cashflow to maintain the business plan and can they be sure in the veracity of the security against which they provide that cashflow.

Are there costs involved with setting up a facility?

As with anything, yes, although working capital facilities will tend to have lower due diligence and legal costs than other facilities; the legal and due diligence process is often done in house at the lender. You may need to budget for between 1 & 5% of the facility size in fees and ancillary costs.

Can you give one piece of free advice?

Yes - if it is us or anyone else, use an advisor with sector experience.

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