These days, investors have few options when it comes to generating yield from publically traded credit. However, economic growth, while measured, has been sufficient to keep default rates on privately placed corporate debt in check. Accordingly, investors are discovering the qualities inherent in this relatively undiscovered asset class, such as shorter duration and yield premiums more often in excess of those available from comparable public credit instruments.
Meanwhile, tighter regulations have made it unfeasible and uneconomical for large financial institutions to lend to small- and medium-sized businesses - precisely the corporate segment that needs growth and expansionary capital the most. Such borrowers are increasingly turning to alternative lenders as a source of financing, which creates an attractive supply-demand dynamic between the companies that need capital and the investors that can provide it. When properly vetted and constructed, these private debt transactions offer risk-adjusted returns well in excess of those available to traditional credit investors.
Structured properly, private debt can provide a much greater safe haven than is typically understood. For instance, Old Hill’s transactions typically carry floating coupon rates and floors in order to protect against rising interest rates, while strong collateral coverage and proper deal structure address a wide variety of other transaction-specific risks. Returns associated with private debt do not typically move in tandem with other assets, such as stocks, private equity or public bonds, in response to changing economic and market conditions. For the portfolio owner, these characteristics can increase portfolio diversification and reduce volatility.
A properly structured asset-backed loan portfolio has the potential to offer attractive returns with minimal volatility, but the market is not simple. The process of identifying, structuring and underwriting a private debt transaction is complicated, variable and by no means a one-size-fits-all process.
Old Hill’s experience in sourcing and constructing transactions is a signature advantage the company offers to investors and borrowers alike.
Old Hill’s process is anchored on a proprietary full-service platform that includes: