In the last ten years since the financial crisis, the number of private debt funds active in the German market has increased significantly. As of today, they have established themselves as a solid alternative to the classic LBO bank financing as well as to corporate bank credits for medium-sized companies, especially if the intended financing is not available on the bank financing market.
The rise of private debt has been fuelled by high institutional market liquidity, increased investment pressure as well as a more restrictive lending approach of the banking industry as an aftermath of the financial crisis. In addition to that, alternative financing sources such as the Bond-M-Market have gone dry. The less a financing can be classified as an investment grade risk, the bigger the chance that debt fund financing would be the most preferable option. Debt funds usually need to quote a higher price than banks, even the conservative ones. This is due to the fact that debt funds need to reflect the higher credit risk and their increased financing costs, compared to banks.
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