Senior Secured Private Credit Note — European Mid-Market

Senior Secured Private Credit Note: First-Lien European Lending at Attractive Yields

Private credit — direct lending to companies outside the public bond markets — has become one of the most significant asset classes of the past decade. As banks retreated from mid-market lending after the 2008 financial crisis and again following the regulatory changes of the 2010s, institutional lenders and private credit funds stepped in to fill the gap. The result is a well-established, institutionally mature lending market offering yields materially above public credit markets for comparable credit quality.

This note provides exposure to a diversified portfolio of senior secured first-lien loans to established European mid-market businesses, targeting a return of 8.5–10.5% per annum paid quarterly.

What is Senior Secured Private Credit?

When a business needs to borrow capital — to fund an acquisition, support working capital, or refinance existing debt — it can approach either the public bond market or a private lender. Mid-market companies (typically £20–£200 million in revenues) generally find the public bond market inaccessible or inefficient for their borrowing needs. Private credit funds provide the lending directly, negotiating loan terms bilaterally with the borrower.

Senior secured first-lien describes the priority of the loan in the borrower's capital structure. First-lien lenders have the highest priority claim on the borrower's assets in the event of default — they are repaid before any junior creditors, mezzanine lenders, or equity holders. The loans are also secured against the borrower's assets (property, equipment, receivables, and in most cases a pledge of the equity in the business), providing tangible collateral backing.

This ranking matters enormously in credit outcomes. Historical recovery rates on first-lien secured loans in European leveraged lending markets have typically ranged from 60–80% even in default scenarios, compared to 20–40% for unsecured or subordinated obligations.

Portfolio Construction

The note is backed by a portfolio of 20 or more individual loans, each originated and underwritten against strict criteria:

• Borrower EBITDA of £5–£50 million (established businesses with proven cash generation)
• Leverage ratios no greater than 4× EBITDA at origination
• Comprehensive security packages including real asset collateral and equity pledges
• Covenant packages providing early warning of credit deterioration
• Sector diversification across healthcare, business services, technology, industrials, and consumer

No single borrower represents more than 7.5% of the portfolio, limiting concentration risk.

Floating Rate Income

The note's coupon is floating — referenced to the Sterling Overnight Index Average (SONIA), plus a spread of approximately 450–650 basis points depending on market conditions at issuance. This floating rate structure means that in a higher-for-longer interest rate environment, the note's income rises with the benchmark rate — unlike fixed-rate bonds, the note is not subject to duration risk from rising rates.

Quarterly income payments are made directly to investors from the underlying loan interest receipts.

Risk Considerations

Credit risk: Borrowers may default. The first-lien secured position provides recovery protection, but capital loss remains possible if a borrower fails and security values are insufficient. Diversification across 20+ borrowers limits the impact of any single default.

Floating rate risk: While floating rate is beneficial in rising rate environments, a significant fall in base rates would reduce income — though the credit spread component remains fixed.

Illiquidity: The note has a three-year term with no early redemption mechanism. Investors should not commit funds they may need access to during the term.

Concentration risk: Despite portfolio diversification, European mid-market credit is correlated with European economic conditions. A severe European recession would increase default rates across the portfolio simultaneously.

Manager and origination risk: The quality of credit underwriting by the lending manager is critical. Poorly underwritten loans represent the primary long-term risk in private credit.

Suitability

This note is designed for sophisticated investors seeking income materially above public market alternatives, with first-lien security and quarterly cash flow. It suits investors with a three-year horizon who understand credit risk and can accept the illiquidity of private debt markets. It should form part of a diversified income-oriented portfolio rather than be a standalone holding.

How to Enquire

Contact our investment team to discuss the current loan portfolio composition, floating rate level, and subscription process. Full information memorandum, financial statements, and security documentation provided to qualified investors following suitability assessment. Minimum investment £100,000.

Important: Capital is at risk. Past performance is not a guarantee of future returns. This is for information purposes only and does not constitute a personal recommendation. Seek independent financial advice before investing. This note illustrates the type of private credit opportunity Global Investments advises on — it is not a live investment offer.