CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt
Compared with a typical public investment-grade bond, a direct (senior) loan made by a private debt fund to a middle-market company is most likely to:
Direct loans from private debt funds are most likely priced at a floating reference rate plus a spread. They are illiquid, negotiated bilaterally, carry strong covenants, and do not trade on exchanges, unlike public investment-grade bonds.
- Abe priced off a floating reference rate plus a spreadCorrect
- Bhave low covenant protection and high liquidity
- Cbe traded daily on a centralized exchange
Explanation
Private direct loans are usually floating-rate, priced at a reference rate plus a spread, and are negotiated with tight covenants. They are illiquid and not exchange traded, so the other two options describe public bonds more than private loans.
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