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FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit

A mid-sized firm with no public rating needs financing for an acquisition and must close within three weeks with confidential terms. A direct lender offers a unitranche facility. Which feature of private credit market structure most plausibly explains why the borrower prefers this route over a syndicated loan or bond issue?

The borrower values that a single direct lender or small club can underwrite and hold the whole loan, delivering speed, execution certainty, confidentiality and tailored terms. Private credit usually costs more than syndicated debt, so the appeal is flexibility and certainty rather than lower price or liquidity.

  1. APrivate credit is always cheaper than bank loans because lenders face no credit risk
  2. BPrivate credit is guaranteed by the central bank, removing the need for covenants
  3. CA single lender or small club can underwrite and hold the entire loan, giving speed, certainty of execution and confidentialityCorrect
  4. DPrivate credit loans are traded daily on exchanges, giving the borrower flexible exit

Explanation

Direct lenders can underwrite and hold the whole facility, enabling quick, certain, confidential execution and bespoke terms. Pricing is typically a premium, not cheaper, and there is no central bank guarantee or exchange trading.

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