Secured Debt
What is the size of a middle market corporation?
$10m - $1bn
What is Mezzanine Debt?
Refers to a tier in a company’s capital structure that sits between secured debt and equity.
what is venture debt?
any form of debt extended to a start-up company backed by venture capital investment
What is the time horizon on non control (trading strategies)
tends to be short- sometimes only weeks
What is one of the biggest risks facing the strategies covered in this module?
Credit Risk
What is another term for direct lending and what does it mean?
Senior lending- when companies borrow directly from institutional investors, typically in the form of senior or secured loans.
What % of the capital structure is usually mezz debt?
5-10%
When does a company typically get venture debt?
After they have received VC financing
What are the costs associated with shorting a bond?
Coupon Payments & Borrowing costs
What is a tranching?
An important feature of structured credit is its ability to offer investors claims to the same basket of underlying collateral, but with different risk and return profiles that suit their objectives
What is the difference between sponsored and non-sponsored deals?
Sponsor refers to a private equity firm with a significant equity stake in the underlying company vs Non-sponsored loan occurs when lending to a company with no private equity firm backing it. Instead, the lender and the company interact directly
What kind of securitization is mezzanine debt
unsecured
what is the typical return on venture debt? What/ if anything allows for further upside?
target a 12–18% IRR for each transaction- warrants
What are the two categories for asset based loans?
Real Assets
Balance Sheet Assets
What is microfinancing?
which is the act of lending to small businesses and segments of society that rely on alternative financial services to banks
Most direct loans are floating-rate loans and are secured debt in a company’s capital structure, meaning they are backed by collateral pledged by the borrower.
What is recapitalization?
recapitalization is the process of restructuring the company’s capital structure, involving the retirement and exchange of existing securities for new ones. In addition, the mezzanine debt may be paid prior to maturity if the borrowing firm is acquired or recapitalized.
What can venture debt be used for?
venture debt funding could be used to hire more personnel, spend on marketing initiatives, or invest in research and development
What are the 3 categories of distressed debt?
Non Control (Trading Strategies),
• Non Control (Active Strategies),
• and Control (Investing Strategies),
What is the Risk Based approach ?
A risk-based approach focuses on the underlying drivers of each strategy’s risk and return and builds the allocation from a total portfolio perspective.
what are direct lending return expectations driven by? and what are the expected returns?
starting interest rates, strategy leverage, and defaults and recovery rates. expected returns typically fall between 5 and 10%
What are 3 of the 6 common uses of Mezz debt?
1. Management Buyouts
2. Growth and expansion.
3. Acquisition
4. Company recapitalization
5. Bridge financing
6. LBO's
What is the loss rate on Venture debt?
Around 3%
What are the advantages to borrowers AND lenders in ABLs
borrower’s perspective, they provide: • Quick and easy ways to borrow money, • Fewer covenants given the bespoke drafting of terms, • Lower interest rates relative to unsecured debt, due to the loan being backed by collateral.
lender’s perspective, they provide: • Attractive yield relative to public bonds • Exposure to diverse lending opportunities • An extra layer of bankruptcy protection due to the loan being backed by collateral.
What are 4 reasons to invest in a structured credit note?
2. Matching Risk & Return
3. Matching time horizons
4. Illiquidity