25 April 2024

Private credit: The Growing Opportunity in Private Placements

Private placements have become an established source of funding for borrowers. Given the potential for incremental returns, diversification, and downside protection, investors are increasingly turning to this asset class too.

Given the relatively higher yields on offer, institutional investors are increasingly considering investments in illiquid private markets—including private placements. For insurance companies and pension funds, in particular, these markets can offer a number of potential advantages, ranging from an illiquidity premium over public markets to enhanced diversification, risk protection, and positive asset-liability matching attributes.

What are Private Placements?

Private placements are essentially notes and loans sold only to qualified institutional buyers (QIBS). Historically an investment grade (IG) market, private placements tend to have intermediate to long-term maturities, and are mostly fixed rate (Figure 1). For issuers, financing via the private market has potential advantages—from confidentiality considerations to the flexibility of issuing debt across a wide range of sizes, maturities, and currencies.

The market also spans a range of geographies, credits and sectors—from universities, sports-related transactions and financials to more esoteric products such as structured finance, credit-tenant lease transactions and aviation deals.

Figure 1: Key Characteristics of Private Placements   
Private placementsPublic Investment Grade Debt
Credit Quality BBB - and above BBB - and above
Tenor  Flexible, 2—50- year 2 year to perpetual 
Income Primarily Fixed or floating
Structure Flexible structuring with delayed draw and bespoke maturities Bullet maturities or scheduled amortization
Prepayment Make-whole provisions for pre-payment Make whole provisions or call structures
Security Primarily senior unsecured or senior secured Senior unsecured through junior subordinated
Key Features Engaged working relationship with borrowers, strong conventants, historically low net losses, stable cash flows Engaged relationship with borrowers, flexibility of tenor and unsecured
Source: Barings. As of February 29, 2024.  

Read more

Any forecasts in this material are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed by Barings or any other person. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Sponsored by
Contact

Ilena Coyle, Managing Director

Phone: +1 980-417-5651

Email: ilena.coyle@barings.com

Latest Stories
  • Carbon prices remain insufficient despite a decade of strong growth, World Bank says

    24 May 2024

    As NZAOA calls on policymakers to follow through on their Paris Agreement commitments

  • Chart of the Week - Round the World with SFCRs, how Groupe MAF's expects market SCR sub-modules to develop

    24 May 2024

    Transparency in the SFCR affords insight into risk planning and budgeting, and accuracy of SCR forecasting, out to 2027

  • French insurers not shifting investments despite "significant" climate exposure in businesses

    24 May 2024

    ACPR has revealed results of second climate stress test

  • Sumitomo Life chucks cash for foreign securities and domestic stocks

    24 May 2024

    AuM grew to JPY 37.4trn in FY 24