Private Debt

Private debt is not new, but it is getting increasing coverage in the business pages as more and more institutions and individuals enter the space. So, I thought I’d do a quick overview and explanation of how we are involved, what’s possible, and the (many) benefits for borrowers.

Private debt is nothing more complicated than a loan or other type of credit advanced by a non-bank lender. It covers everything from a hedge fund or private equity fund lending, a multi-billion-pound company, right down to you borrowing some money off your friend or family for whatever reason. It may include your credit card, your car loan, the finance in your business, your buy-to-let mortgage and is almost certainly your bridge loan or development finance.?

Private debt is always a loan, meaning the lender doesn’t take shares or ownership in the company or opportunity (that’s private equity). The loan normally has all the features of a bank loan: an interest rate, a term, defined security and fees, charges, conditions and covenants.?

Private debt is increasingly attractive as an asset class. Yields can be high, the loans can be bought and sold, and there is a rapidly increasing marketplace of borrowers and lenders, and it can be a gateway to more and more opportunities.?

For businesses and borrowers, it’s also an increasingly advantageous way of borrowing money. Banks have a reputation of being slow and hard to deal with, often have rigid criteria, and many still have what seems to be a continued disinterest in lending to anyone other than the most vanilla and established of businesses. (Of course, some wonderful banks are the exception to this statement!) Private debt, on the other hand, can be very flexible, rapid to arrange and by its very nature, used for almost any purpose.?

I am involved in private debt in a number of ways, and I thought explaining them may be useful or create some ideas or opportunities – these exist both on the borrow and the lend side of the transaction.

Broking

The obvious one first: via Enness , we help people and companies borrow money for all manner of reasons. When we broker loans, we often show our clients several options which they can use to get the capital they need. More and more often, the cheapest, most flexible, and fastest lending solution is private debt. When it’s a fit for our clients, private debt features heavily in our recommendations. Sometimes, it’s the only lending option that works, or it’s the closest option to the perfect fit in complex deals.

Lending?

I’m involved in direct lending in a few ways:

The first is through?Tenn Capital. Tenn lends against high-value international real estate and is squarely a private debt lender. Its funding comes from several sources – the most important is a credit line from a global institution.

Tenn also raises money for some special transactions from a number of HNW individuals, family offices and other similar sources.?These “funders” receive a return on the money they provide (normally more than 8%) and get access to credit-assessed opportunities which have been fully underwritten and have solid security. Tenn manages the whole process. Borrowers benefit from being able to finance deals that would usually be out of reach because a scenario is too ambitious, too complex or because they don’t have a background that meets mainstream lenders or a bank’s risk appetite. On the other hand, funders benefit from the potential to participate in high ROI deals secured by quality assets and underwritten by credit experts – it’s the ultimate win-win.

Another way is through what I call?matchmaking. Sometimes, we come across unusual transactions that aren’t suitable for mainstream lenders for any number of reasons, and we will sometimes raise money for a quality borrower directly from our friends and clients. For example, if Mr A needs a loan for a particular purpose that we can’t source via traditional routes, we then approach Mr B or Mrs C, who we think have the liquidity, risk appetite and understanding of the borrower or industry to be comfortable enough to advance a loan. We manage the security, documentation, negotiation on terms and paperwork to complete the transaction. The risk here sits more squarely with the lenders; in return, you would expect a greater level of security or a higher interest rate to cover the risk.?Borrowers can access finance they might not be able to any other way, and Mr B and Mrs C stand to benefit from excellent returns, safe in the knowledge the loan set up is appropriately managed.

I’m also personally involved in?Private Capital?– Hugh and I have also been known to lend to clients where there is a short-term funding gap, especially in cases where we know the client, understand the transaction and know the other lenders involved. We particularly like what we call “but for” lending (a term created by a very talented lawyer we know). “But for” lending describes all the circumstances where something good or profitable could happen, or mainstream funding could be arranged if only a small problem were overcome. And a loan solves that problem.?

Regulation is a very important consideration for all of the above, and our market knowledge, experience and access allows us to create great solutions in the most nimble of ways.?

Fundraising

We also regularly help firms raise the money they need for their own lending business via the contacts and sources we know. This covers all manner of niches – we are always happy to offer our experience and market access to new lenders who have a great market and need to raise the money to need.

If you are interested in raising money, borrowing money for a challenging scenario, or you are interested in lending money directly in the ways I have explained above, I’m really happy to talk and explain in more detail.?

This type of lending is certainly going to become more and more essential to both borrowers and lenders.