The number of private debt funds operating in the German market has increased significantly over the past ten years following the financial crisis. They are now an established alternative to traditional LBO bank financing but also to bank loans for medium-sized companies, especially when the desired financing is not available in the banking market.

The rise of private debt can be attributed not only to the high level of institutional liquidity in the market and general investment pressure, but also to the more restrictive lending policies of banks following the financial crisis. Alternative markets such as the Bond-M market are also often no longer available. The further the financing sought moves from the investment grade rating towards non-investment grade, the more likely a debt fund is the preferable alternative. However, debt funds - even those that operate conservatively - have to apply a higher pricing due to the increased credit risk and also because of the higher refinancing expenses compared to banks.

Debt Fund Financing Compared to Traditional Bank Financing

Compared to bank financing, debt fund financing usually offers a higher maximum financing volume, a longer term and does not require repayments. Banks, on the other hand, value redemptions to reduce risk. Debt funds also usually offer greater flexibility in terms of freedom with regard to documentation and covenants.