Private debt refers to all financing extended to unlisted companies outside the traditional banking system, in the form of loans or bonds. Unlike private equity, the investor does not become a shareholder here: they are a creditor of the company and, in return, receive regular interest payments along with repayment priority over shareholders. An asset class that has grown strongly since the 2008 financial crisis, it sits between traditional bank debt and private equity, offering an intermediate risk/return profile. This guide details its definition, instruments (senior debt, mezzanine, unitranche), returns, comparison with private equity, the role of debt in an LBO transaction, and how professional and sophisticated investors can access it.
Private Corner selects the best managers and opens access from €100,000.
What is private debt? Definition
Private debt, sometimes referred to as private credit or private financing, brings together loans and debt securities granted to unlisted companies by specialized investment funds, rather than by banks or public bond markets. The company borrows without opening up its capital: the financing is therefore non-dilutive for its shareholders.
Definition and origins of private debt
Within private assets — which also include private equity, real estate and infrastructure — private debt makes up the "credit" building block. Its risk/return profile sits between equity and traditional bank debt. It primarily finances small and mid-sized companies (SMEs and mid-caps) seeking financing that is more flexible, faster and tailored to their specific needs: growth, acquisition, refinancing or transmission. The return comes from interest paid by the borrower, not from a capital gain on resale as in private equity.
Private debt, private credit, direct lending: what's the difference?
These terms describe the same reality: debt financing provided outside the banking system. Direct lending — a fund lending directly to a company — forms the core of the market. Deals are structured either bilaterally (one lender) or as club deals (several lenders), making them less dependent on listed market conditions. A further distinction is made between "sponsored" financing (alongside a private equity fund) and "sponsorless" financing (directly with the company).
Why private debt emerged after 2008
The 2008 financial crisis, followed by the Basel III regulatory framework, imposed higher capital and liquidity requirements on banks, mechanically reducing their capacity to finance SMEs and mid-caps. This bank disintermediation opened up significant space for private debt funds, which became an alternative source of financing for the real economy. The rise in interest rates from 2022 onward further boosted the appeal of the asset class, whose returns are frequently indexed to floating rates.
A brief history of private debt funds: from the 1980s to today
The first private debt funds emerged in the United States in the 1980s, driven by banking deregulation: banks began selling leveraged loans to institutional investors (pension funds, insurers), creating a secondary market that debt funds moved into. The 2008 crisis marked their real rise to prominence, filling the gap left by the contraction in bank lending. Today, in an environment of elevated rates and tighter bank discipline, credit funds finance a growing share of European mid-market deals, where banks have become more selective.
Key takeaways
- Private debt = the investor is a creditor (a lender), not a shareholder.
- It finances unlisted companies outside the banking system.
- Global market: more than $1.8 trillion in assets at the end of 2024, up from under $300 billion in 2010 (≈ +15% per year — order of magnitude, source: Preqin).
The different types of private debt
Not all debt is the same: its risk and return profile depends above all on its seniority in the company's financing structure, that is, its priority of repayment in the event of distress. As with private equity, the instruments are varied and serve different purposes: senior loans, mezzanine debt, unitranche, bridge loans and distressed debt.
Senior debt
Senior debt is the most defensive segment of private debt: it benefits from repayment priority in the event of default and is often backed by collateral (pledges, security over the company's assets). For the investor, this translates into limited risk, a priority repayment rank and a more moderate return — generally in the range of 5% to 7%, still above government bonds. For the borrower, it offers a lower rate than other forms of debt, without diluting capital, in exchange for collateral and financial covenants (debt ratios to be respected).
Mezzanine and junior debt
Subordinated to senior debt, mezzanine (or junior) debt sits between senior debt and equity: it is repaid only after priority creditors, most often without collateral. Riskier, it is better compensated — typically 8% to 12% — and frequently includes an upside-sharing mechanism (an equity kicker, in the form of warrants). It is often used to finance a company's growth or to round out the financing of an LBO transaction, easing pressure on cash flow (interest is sometimes capitalized) and limiting dilution for shareholders.
Unitranche debt
Unitranche debt is a hybrid instrument that merges, into a single financing facility, the characteristics of senior and mezzanine debt. It offers a single blended rate (a weighted average of the two), a single counterparty and simplified legal documentation. Faster to put in place and more flexible on covenants, it simplifies the borrower's financing structure and saves time during fundraising. For the investor, it offers a higher return than senior debt, in exchange for greater risk and cost. It is particularly well suited to mid-cap transactions and widely used in LBO structuring.
Bridge loans and distressed debt
A bridge loan is short-term financing (a few months to a year), used in LBO or MBO transactions to cover the gap between the acquisition of a company and the arrangement of permanent financing. Structured as a short-term loan with a higher rate, it is repaid as soon as the permanent financing is in place. Distressed debt, at the other end of the spectrum, targets companies in difficulty or special situations: its return is high, but its risk profile moves closer to that of equity.
Summary: senior, mezzanine and unitranche
| Type of debt | Seniority | Risk | Indicative return |
|---|---|---|---|
| Senior debt | Priority | Low to moderate | 5 – 7% |
| Mezzanine / junior debt | Subordinated | High | 8 – 12% |
| Unitranche debt | Blended (senior + mezz.) | Moderate | Blended rate |
| Distressed / opportunistic debt | Variable | Very high | > 15% |
Return and risk of private debt
What returns can be expected from private debt?
Overall, private debt returns stood at roughly 8% to 10% in 2024 depending on the strategy, compared with 2% to 3% offered by government bonds. This premium reflects the lower liquidity of unlisted loans and the bespoke nature of the deals. In a higher-rate environment, returns that are often indexed to floating rates provide a further advantage, as does the senior position in the capital structure and contractual protections (covenants, collateral).
The risks of private debt
Private debt carries several risks. First, credit risk: the borrower may be unable to repay, and recovery then depends on the seniority of the claim, the quality of the collateral and the value of the underlying assets. Second, illiquidity risk: capital is locked up for several years (often 5 to 10), with no organized secondary market allowing for an early exit. Interest rate and market risks add to the picture. Covenants and legal documentation exist precisely to govern the lender-borrower relationship and allow early action if the situation deteriorates. In exchange, private debt has a low correlation to equity markets, which makes it a sought-after diversification tool.
In summary
- Intermediate return between listed bonds and private equity, rising with the risk taken.
- Regular and more predictable income, but a capped upside compared with private equity.
- Three key risks: credit (default), illiquidity (locked-up capital) and interest rates; in exchange, low correlation to listed markets.
Private debt vs. private equity: what are the differences?
Private debt and private equity are often grouped together under the term "private markets" and share a common foundation — financing unlisted companies. But they rest on fundamentally different mechanisms, and prove largely complementary.
Creditor or shareholder: the fundamental distinction
In private equity, the investor becomes a shareholder: they take a stake in the capital of an unlisted company and seek a capital gain on exit, after several years. They are repaid last in the event of bankruptcy. In private debt, the investor is a creditor: they receive contractual interest and benefit from repayment priority over shareholders. The risk is structurally lower, but the upside potential is more contained.
👉 To learn more: What is private equity?
Comparison: risk, return, horizon
| Criterion | Private equity | Private debt |
|---|---|---|
| Position | Shareholder | Creditor |
| Source of return | Capital gain on exit | Interest (coupons) |
| Repayment | Last | Priority over shareholders |
| Target return | Higher (capital appreciation) | More moderate (regular income) |
| Risk | Higher | Lower |
| Horizon | Long (≈ 8 – 12 years) | Medium / long (≈ 7 – 10 years) |
The role of private debt in private equity transactions (LBOs)
Private debt and private equity are not in opposition: they often complement each other within the same transaction. In a leveraged buyout (LBO), debt is a performance lever that allows a company to be acquired without relying solely on equity, thereby amplifying the return on invested capital. Private debt funds finance the acquisition alongside private equity funds (sponsored debt): faster to structure and more flexible on covenants, they have become preferred partners of private equity firms.
👉 To learn more: LBO (Leveraged Buy-Out) guide
Illustration: an LBO transaction step by step
In practice, here is how a buyout combining a private equity fund and a private debt fund typically unfolds:
- Identifying the target and negotiating the price: the private equity fund identifies a company and agrees with its shareholders on a purchase price.
- Structuring the debt: a private debt fund is brought in to finance part of the deal, structuring the debt (often a less remunerative senior tranche and a more remunerative junior tranche) according to the target's risk profile and repayment capacity.
- Equity contribution: the private equity fund contributes equity, sourced from its investors or co-investors.
- Creating the holding company: a dedicated holding company is set up to carry out the acquisition.
- Acquiring the target: the holding company buys the shares of the company, financed by the debt raised and the equity contributed.
- Management and value creation: the fund takes control, puts in place governance, and rolls out a development plan to increase value.
- Repaying the debt: the company repays the debt from its cash flows; the debt fund is serviced first, ahead of shareholders.
- Exit: once value has been created, the private equity fund sells its stake (to an industrial buyer, another fund, or via an IPO) and realizes its capital gain.
For investors in the private equity fund, leverage amplifies the potential return, but the risk is higher. For investors in the private debt fund, the return is more measured, but repayment priority offers greater security in the event of default.
How to invest in private debt?
Who can invest in private debt?
Private debt is a relatively illiquid asset class, reserved for professional or sophisticated investors, accessible through funds (FCPR, FPCI, FPS, etc.). Historically high minimum tickets restricted access to institutional investors and large family offices; the broader move to democratize private markets is now extending access to a wider private client base, through their wealth management advisors.
How does a private debt fund work?
On the fund side, the cycle unfolds in four stages: raising capital from institutional and private investors; deploying that capital into debt instruments (senior loans, mezzanine, private bonds, etc.) according to the fund's strategy; actively managing the portfolio (credit risk analysis and monitoring, covenant negotiation, ongoing oversight of financed companies); and finally repaying and distributing income to investors as the loans are repaid.
On the investor side, the logic is symmetrical: subscribing to units subject to eligibility conditions (minimum ticket, capital calls, lock-up period), earning a return in the form of interest and portfolio performance, exposure to credit, interest rate and illiquidity risk, and an exit governed by the fund's own rules.
👉 To learn more: Private debt funds: definition, returns and risks
Focus: Private Corner Credit Yield
With Private Corner Credit Yield, Private Corner offers a fund of private debt funds providing access to two complementary strategies managed by leading global players: CVC Credit, through a structured credit strategy (CLO Equity), and General Atlantic, via a strategic capital approach (opportunistic private debt). This combination aims to offer diversified exposure to a portfolio of more than 700 companies, primarily financed through secured senior debt, split between the United States (55%) and Europe (45%), across the upper mid-market and large-cap segments.
For investors, this strategy combines geographic, sector and manager diversification, with a target average annual net coupon of around 8%, a target net IRR of 13% and a target net multiple of 1.6x. Income distributions are scheduled semi-annually, with gradual capital repayments starting from year four. As with any private debt strategy, it nonetheless involves credit, liquidity, interest rate and capital loss risks.
To find out more about this private debt fund, see the Private Corner Credit Yield press release.
Investing through an AMF-regulated private debt asset manager
Investing in private debt requires specialized expertise: deal sourcing, credit analysis, structuring, ongoing monitoring of financed companies and diversification of exposures are all critical success factors. Going through an asset management company regulated by the French Autorité des marchés financiers (AMF) provides a regulated framework, rigorous manager selection and continuous investment monitoring — essential safeguards in such a technical asset class.
The Private Corner approach
Private Corner is a French digital asset management company, regulated by the AMF (no. GP-20000038), that institutionalizes access to private assets for wealth and private banking professionals and their clients. Having surpassed €1 billion raised in five years of existence, the company provides access, through its fully digital platform, to a selection of funds typically reserved for institutional investors. In private debt, Private Corner launched the Private Credit Yield fund, exposed to the strategies of two European leaders, General Atlantic and CVC Credit. This fund is no longer open for subscription. Access to the funds is open from €100,000 (and from €20,000 via its FCPR), for professional or sophisticated investors, through their advisors.
👉 To learn more: Investing in private equity via an AMF-regulated platform
Conclusion
Private debt has established itself as a pillar of financing for unlisted companies and as a fully-fledged building block of wealth allocations. As a creditor, the investor is primarily seeking regular income and good visibility on cash flows, with a risk/return profile that sits between bank debt and private equity. Understanding the different tiers of debt — senior, mezzanine, unitranche — and their position in the financing structure is key to assessing the risk profile of each strategy. Far from competing with private equity, private debt complements it, as illustrated by its central role in LBO transactions. To access it within a secure framework, going through an AMF-regulated asset management company remains the preferred route for private investors, through their advisors.
FAQ – Private debt
What is private debt?
Private debt refers to financing (loans or bonds) extended to unlisted companies by specialized funds, outside the traditional banking system. The investor becomes a creditor of the company and earns interest, without becoming a shareholder.
What is the difference between private debt and private equity?
In private equity, the investor becomes a shareholder and seeks a capital gain on exit, but is repaid last. In private debt, the investor is a creditor: they earn interest and benefit from repayment priority, for a lower risk and a more contained return potential.
What returns can be expected from private debt?
Depending on the strategy, returns generally stood between 8% and 10% in 2024, compared with 2% to 3% for government bonds. The return depends on the seniority of the debt: roughly 5% to 7% for senior debt, 8% to 12% for mezzanine, and more for opportunistic strategies.
What is unitranche debt?
Unitranche debt is a hybrid financing instrument that combines, in a single facility, the characteristics of senior and mezzanine debt. It offers a single blended rate, a single counterparty and simplified documentation, making it a fast instrument to structure that is widely used in mid-cap LBO transactions.
What types of companies do private debt funds lend to?
Mainly small and mid-sized companies, often in the mid-market, seeking financing for growth, an acquisition or a refinancing, and who favor the flexibility and speed of a fund over traditional bank credit.
How do you invest in private debt?
Private debt is invested in through dedicated funds, reserved for professional or sophisticated investors. The safest route is to go through an AMF-regulated asset management company, which selects managers and monitors investments. Private Corner provides access to institutional private debt funds from €100,000 (€20,000 via its FCPR), through wealth management advisors.
