You don’t need to be a genius to understand what happens when you lend money to a private company, but there are important things you need to know.
Let’s take the mystique out of private loans!
Investments in Private Debt
Whether called Promissory Notes, Senior Notes, Senior Secured Notes, or Subordinated Notes, they’re all a form of debt investment representing an obligation by a Borrower (the Issuer) to repay a Lender (potentially you) the borrowed amount (the Principal) with interest (aka Coupon) by an agreed-upon date (the Maturity Date).
Debt Securities are also referred to as Fixed Income Securities because they provide Investors with a specified rate of return through payment of an annualized interest rate that is typically paid by the Issuer monthly or quarterly on the outstanding Principal balance. Equity Securities, on the other hand, provide Investors with a share of the Issuer’s profits, but only after the Issuer has first satisfied the payment obligations of all of its debt securities and loan obligations.
Companies can raise private debt amounts from less than $10,000 to well over $1,000,000,000 through Private Placement Offerings.
Maturities (i.e., when the Principal is due to be repaid) can be short-term (say 90 days) to over 10 years. In many cases, amortizing Principal repayment is established when the debt Security is issued. Amortization involves the scheduled, partial return of Principal over the life of the Note or