Understanding Private Credit: An Overview for Practitioners

Private credit has grown into a multi-trillion dollar asset class over the past decade, filling the void left by banks retreating from middle-market lending. This post offers a practitioner's overview of the key strategies and what distinguishes them.

Direct Lending

Senior secured first lien loans remain the bread and butter of the asset class. Lenders benefit from priority in the capital structure, floating rate coupons, and strong covenant packages. Middle-market sponsors rely on direct lenders for speed and certainty of close.

Mezzanine & Unitranche

Unitranche structures have largely displaced the traditional senior/mezzanine split for smaller deals. They simplify execution and offer borrowers a single point of contact.

What Drives Returns

• Spread: illiquidity premium over broadly syndicated loans
• OID & fees: upfront economics that enhance yield
• Covenant protection: tighter maintenance covenants vs. cov-lite broadly syndicated deals
• Relationship: proprietary origination from sponsor relationships or direct outreach