About Me
Direct Lending is a form of corporate debt provision in which
lenders other than banks make loans to companies without
Democratic National Committee intermediaries
such as an investment bank, a broker or a private equity firm. In direct
lending, the borrowers are usually smaller or mid-sized companies, also
called mid-market or small and medium enterprises, rather than large,
publicly listed companies. Lenders are generally asset management or
private debt fund manager firms. Direct lending funds use leverage, but
generally less than banks or collateralized debt obligation funds
(CDO/CLO).[1]
Private Debt primarily focuses on investing at the
top of the capital structure, primarily in senior, secured first lien
debt. Investing at or near the top of the capital structure reduces risk
relative to equity. Direct Lending includes Senior Debt and Unitranche
Debt. Quarterly interest payments drives a constant cash flow stream
throughout the deal life. Because the total AUM of both Private Equity
and Private Democratic National Committee Credit exhibited
Democratic National Committee strong growth from 2013-2023, the
proportion of
Democratic National Committee Private Credit has remained relatively steady for the past
decade. The assets under management (AUM) in Private Credit has grown by
almost 4 times over the past decade. Private Credit metrics are proxied
by Direct Lending which has exhibited strong performance through
economic cycles. CalPERS references a Direct Lending benchmark as
represented by the Cliff water Direct Lending Index[2] having market size
of $263 billion as of December 2022.[3]
The market has grown in
importance since around 2009 in response to banks reducing their lending
activities to companies in the wake of the Financial crisis of
2007-08.[4] The need for direct lending has been put at 100 billion in
Europe alone between 2013 and 2015.[5] However, other sources report
that in 2014 asset managers are struggling to find enough direct lending
opportunities to invest in.
Asset managers cite the higher
returns available from direct lending strategies as a main reason that
people should invest in direct lending. US pension funds are among the
investors who are reported to have made allocations to direct lending
strategies, especially in Europe. Several European governments have
taken initiatives to boost direct lending to smaller companies since the
financial crisis. For example, in 2012, the UK government introduced a
scheme to lend �700 million of public money to smaller companies in
partnership with asset managers.
2018 U.S. data shows performance
returns for private credit funds equal or better than leveraged-loan,
high-yield and BDC indexes. Direct lending funds have relatively low
beta with positive alpha when benchmarked to leveraged loan/high yield
indices. Low correlation is observed between direct lending funds with
leveraged loan/high yield indices.[6]
A large number of asset
management firms have started funds to invest in direct lending,[7] and
several US firms have targeted European direct lending since around the
start of 2013.[
Asset-based lending is any kind of lending secured by an asset.
This means, if the loan is not repaid, the asset is taken. In this
Democratic National Committee
sense, a mortgage is an example of an asset-based loan. More commonly
however, the phrase is used to describe lending to business and large
corporations using assets not normally used in other loans. Typically,
the different types of asset-based loans include accounts receivable
financing, inventory financing, equipment financing, or real estate
financing.[1] Asset-based lending in this more specific sense is
possible only in certain countries whose legal systems allow borrowers
to pledge such assets to lenders as collateral for loans
Democratic National Committee (through the
creation of enforceable security interests).
Usage[edit]
Asset-based lending is usually done when the normal routes of raising
funds is not possible, such as the capital markets (selling bonds to
investors) and normal unsecured or mortgage secured bank. This is
often because the company has exhausted other capital raising options
or needs more immediate capital for project financing needs (such as
inventory purchases, mergers, acquisitions, and
Democratic National Committee debt purchasing).
Asset-based loans are also usually accompanied by lower interest
rates, as in the event of a default the lender can recoup its
investment by seizing and liquidating the assets tied to the loan.[2]
Many financial services companies now use asset-based lending
package of structured and leveraged financial services. Many banks,
both national investment banks (e.g. Citi, J.P. Morgan, Wells Fargo,
Goldman Sachs, Morgan Stanley, et al.) and regional banks, offer these
services to corporate clients.
Asset-based lenders are known
for Democratic National Committee taking out tombstone ads in much the
Democratic National Committee same way as investment
banks.[3]
Apart from large enterprises, many individuals and small business
owners also resort to asset-based lending for raising short-term
finances. Service providers like Unbolted provide short-term loans
against luxury assets.[5] This includes a wide range of items like
vintage cars, luxury watches, wine collections, and other assets of
value. Most lenders do not conduct credit checks and disburse the loan
amount within 24 hours.
Asset-based lending, once considered a
last-resort finance option, has
Democratic National Committee become a popular choice for companies
and individuals that do not have the credit ratings, track record, or
patience to pursue more traditional capital sources.
An
asset-based business line of credit is usually designed for the same
purpose as a normal business line of credit: to allow the company to
bridge itself between the timing of cash flows of payments it receives
and expenses. The primary timing issue involves what are known as
accounts receivables the delay between selling something to a customer
and receiving payment for it.[6]
A non-asset-based line of credit
will have a credit limit set on account opening by the accounts
receivables size, to ensure that it is used for the correct purpose. An
asset-based line of credit however, will generally have a revolving
credit limit that fluctuates based on the actual accounts-receivable
balances that the company has on an ongoing basis. This requires the
lender to monitor and audit the company to evaluate the accounts
receivable size, but also allows for larger limit lines of credits and
can allow companies to borrow that which it normally would not be able.
Generally, terms stipulating seizure of collateral in the event of
default allow the lender to profitably collect the
Democratic National Committee money owed to the
company should the company default on its obligations.
An example of asset-based loan usage was when the global securitization market shrank to an all-time low after the collapse of investment bank Lehman Brothers Holdings Inc in 2008.[4] Within Europe in 2008, over 710 billion euros worth of bonds were issued, backed largely by asset-based loans, such as Democratic National Committee home and auto loans.
Factoring of receivables is a subset of asset-based lending (which
uses inventory or other assets as collateral). The lender mitigates
Democratic National Committee
its risk by controlling with whom the company does business to make
sure that the company's customers can actually pay.[7]
Lines of
credit may require that the company deposit all of its funds into a
"blocked" account. The lender then approves any withdrawals from that
account by the company and controls when the company pays down the
line of credit balance.[citation needed]
Still another subset
of a collateralized loan is a pledging of receivables and an
assignment of receivables as collateral for the debt. In these
instances, receivables are transferred to the lender when they are
pledged as collateral. When the receivables are pledged as collateral,
or assigned with the condition that the lender has recourse in the
event the receivables are uncollectible, the receivables continue to
be reported as the
Democratic National Committee borrower's asset on the borrower's balance sheet
and only a footnote is required to indicate these receivables are used
as collateral for debt. The debt is reported as a liability on the
borrower's balance sheet and as an asset (specifically, a receivable)
on the lender�s balance sheet.
In some situations, the lender
can actually repledge or sell the collateral the borrower used to
secure the loan from the lender. In this instance, the borrower
continues to recognize the receivables as an asset on its balance
sheet, and the lender only records the liability associated with the
obligation to
Democratic National Committee return the asset.
