Private debt includes any debt held by or extended to privately held companies. It comes in many forms, but most commonly involves non-bank institutions making loans to private companies or buying those loans on the secondary market. A variety of investors, or private debt funds, are involved in the space. They include direct lend, distressed debt, mezzanine, real estate, infrastructure and special situations funds, among others. In addition to paying back the full sum of the loan in the future, the company must also pay the lending institution interest. Private debt funds come in different shapes and sizes. For example, some provide capital to sponsor-backed borrowers, others fund real estate development projects, and some invest entirely in the debt of distressed companies. The combination of equity and debt forms a company’s capital structure.
The balance of debt versus equity is unique to each company and is determined by the management team’s evaluation of various loan terms and other business factors.