Adventures in Unrated Debt Investing

Abstract

Liquidity is provided in greater amounts and variety each year in the form of junior debt to finance companies. Thus, a significant amount of junior debt now resides with a large number of unrated middle-market companies. Veterans and new investors have arrived at this adventure in unrated debt investing from different backgrounds, skills, and agendas. This article provides a framework for protective action against downside risk in what is a relatively illiquid, covenant-light market where hesitation and uncertainty can cause harm with increasing speed.

TOPICS: Private equity, credit risk management, downside-only measures, legal/regulatory/public policy