How do PE funds use debt in APAC deals?

While we typically think of PE funds as ‘equity’ investments, it is PE’s use of ‘debt’ that often enables out-performance.

In APAC we see various debt strategies being deployed by PE funds including fund finance, SPV finance and even SPV note securitizations.

Fund finance

At each of fund, GP and even LP levels debt is increasingly common, as investors borrow from private credit lenders to address cashflow issues or to achieve commercial objectives.

SPV finance

SPV level debt is also common as private credit managers use debt to provide leverage for acquisitions, or loans might be made at the SPV level to deliver direct lending solutions.

Note securitization

A spin on pre-GFC structured finance strategies, we also see orphan SPVs serving as note issuance platforms. Arguably ‘cleaner’ and more flexible than partnership or equity arrangements.

Notes issued from an SPV possess various maturities, interest rates and waterfalls and priorities, providing investors with senior, mezz, junior debt or equity features.

Note trustee

Often combined with a facility agent role, the note trustee role can be complex or purely administrative depending on the transaction. In practice the note trustee seeks to minimize deal transactional costs through-out the life cycle of the deal.

Debt strategy servicing?

What is fascinating about the DCM space is the extent to which the debt servicing market has evolved from the note trustee being a silent deal partner pre-GFC to now a tech enabled collateral monitoring, reporting and payments deal partner.

This evolution reflects the changes taking place in the APAC private credit market. As private credit funds disrupt banking business models, debt service providers need to innovate new value enhancing solutions to support the full range of PE’s return enhancement strategies.