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BACK TO PRIVATE CREDIT OVERVIEW

Private credit

Moody's Ratings capabilities

We have a range of credit rating and assessment capabilities that cater to all market participants. Dive into our suite of products and services to help you make better decisions. 

Moody's Ratings and private credit

Middle Market CLOs (MM CLOs), business development companies (BDCs) and closed end funds (CEFs) invest in private credit but assume different risks within the broader asset class, according to the allowances and limitations of their structures. These differences in structure and asset risk give rise to divergent credit profiles among the three investment vehicles. 

In general, BDCs' investment risk appetite, operational risks (deal origination, underwriting, funding and liquidity management) and financial latitude often increase their overall credit risk profiles compared to MM CLOs, which have more narrowly specified risk parameters and features to protect investors in the event of collateral eligibility, collateral quality or overcollateralization or interest coverage breaches. CEFs share certain features of both BDCs and MM CLOs and therefore generally have credit risk profiles positioned in between them. Moody’s Ratings can provide public and private credit ratings on private debt investment vehicles, including BDCs and CLOs. 

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01 Business Development Companies (BDCs)?

Business Development Companies (BDCs)?

BDCs are a special type of closed-end fund authorized in the US under The Investment Company Act of 1940, as amended, with a special mandate to provide debt capital to small and medium-size US businesses as well as managerial assistance. We rate several different types of BDCs, including publicly traded BDCs, private BDCs and perpetually non-traded BDCs (which are a rapidly growing part of the industry).

 

02 CLOs Middle Market Collateralized Loan Obligations (MM CLOs)?

CLOs Middle Market Collateralized Loan Obligations (MM CLOs)?

MM CLOs, which are bankruptcy remote special purpose vehicles, are one important source of term leveraged financing for middle market and direct loan originators. MM CLOs are portfolios of loans held by a vehicle that relies on the ongoing interest and principal payments to service debt (typically notes) issued to capital markets investors. Unlike broadly syndicated loan (BSL) CLOs where the pool of collateral largely consists of rated debt, MM CLOs are typically characterized by pools of unrated collateral. 

03 Closed-End Funds (CEFs)?

Closed-End Funds (CEFs)?

Closed-end funds that are active in middle market direct lending are typically private partnerships, formed for the purpose of making investments over a defined period.  

04 Hedge Fund Collateralized Fund Obligations (HF CFOs)?

Hedge Fund Collateralized Fund Obligations (HF CFOs)?

HF CFOs are obligations of special purpose vehicles (SPVs) that are backed by a portfolio of hedge fund shares and are thus similar in structure to collateralized loan obligations.

What are...

Business Development Companies (BDCs)?

BDCs are a special type of closed-end fund authorized in the US under The Investment Company Act of 1940, as amended, with a special mandate to provide debt capital to small and medium-size US businesses as well as managerial assistance. We rate several different types of BDCs, including publicly traded BDCs, private BDCs and perpetually non-traded BDCs (which are a rapidly growing part of the industry).

 

CLOs Middle Market Collateralized Loan Obligations (MM CLOs)?

MM CLOs, which are bankruptcy remote special purpose vehicles, are one important source of term leveraged financing for middle market and direct loan originators. MM CLOs are portfolios of loans held by a vehicle that relies on the ongoing interest and principal payments to service debt (typically notes) issued to capital markets investors. Unlike broadly syndicated loan (BSL) CLOs where the pool of collateral largely consists of rated debt, MM CLOs are typically characterized by pools of unrated collateral. 

Closed-End Funds (CEFs)?

Closed-end funds that are active in middle market direct lending are typically private partnerships, formed for the purpose of making investments over a defined period.  

Hedge Fund Collateralized Fund Obligations (HF CFOs)?

HF CFOs are obligations of special purpose vehicles (SPVs) that are backed by a portfolio of hedge fund shares and are thus similar in structure to collateralized loan obligations.

Case study 1

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who: INSURANCE INVESTOR
A Portfolio Manager (PM) at a large global asset management company serving customers worldwide is looking to unlock new sources of capital

The scenario
A portfolio Manager (PM) is looking to increase capacity with institutional investors and establishes a feeder fund. A rating may be beneficial for the PM to access capital from insurance investors.

potential SOLUTION
Moody's Ratings offers a product solution through which investors can request a private monitored credit rating delivered confidentially, which can inform strategic decision-making related to the risk of the underlying assets in a Master Feeder Structure (in many cases, a Direct Lending fund).  Learn more about the Private Rating for Investors (PRI) product. 

Case study 2

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WHo: Issuer
A Treasurer of a US Business Development Company (BDC)  

THE SCEnario
A US BDC is looking to raise new capital by issuing a $500 million senior unsecured note due in 5 years. The BDC aims to diversify their investor base and would like to hold certain assets on their balance sheet.

potential SOLUTION
Through our Public Credit Rating product, the issuer can obtain a credit rating on their planned debt issuance, allowing them to potentially widen their investor base, unlock wider sources of capital, and enhance pricing for the issue.