Private credit funds turn innovative to deliver high returns

economictimes.indiatimes.com:

Davidson Kemper, Ares SSG, and Varde Partners. Going beyond consortium loans with a fixed coupon and tenor, advisors are cobbling together lenders to fund borrowers at different rates and with different tenors to create more grades in the seniority of claimants in repayment schedule.

Funds are adopting innovative strategies to meet investor demands for higher returns, especially in credit funds, where investments are structured in a way to allow for risk to be time-tranched, with investors selecting credit opportunities based on their individual risk appetites. In large-size deals like Jayaswal Neco, time tranching — also known as prepayment tranching that determines how principal cash flows are allocated — is being considered to accommodate varying risk appetites and cash flows.

Deals are structured in such a way that different portions of the funds are invested at different points in time allowing for more flexibility in managing risks and cash flows associated with the deal. Also, funds are now exploring convertibles as a potential avenue.

With equity capital markets posing challenges in terms of dilution, a unique «sweet spot» emerges for convertibles and this allows hybrid funds and private credit funds to invest, offering a balance of protection and potential upside in the convertible realm. While the convertible market in India may not be as mature as those globally, it offers opportunity for those seeking growth capital without overburdening their balance sheets.