Private Credit

The thesis

Credit that does not pass through a bank's balance sheet has become a real alternative for companies that banks serve poorly: those that need long tenors, grace periods or bespoke structures. It costs more than secured bank lending, and therefore pays off only when the flexibility it buys is worth more than the spread it charges

What is meant by private credit

The term covers financing provided by non-bank investors: credit fund managers, receivables investment funds (FIDCs), securitisation companies and funds that buy debentures and commercial notes. The money comes from investors seeking returns above traditional fixed income who accept the credit risk of privately held companies

The most significant regulatory change of recent years was the new investment fund framework, which reorganised the structure of the vehicles, including receivables funds.¹

Why banks serve certain companies poorly

Banks price on risk and collateral, and prefer short tenors, regular amortisation and balance sheet covenants. That works for the working capital of a stable company. It works poorly for those needing a five- to seven-year tenor, a grace period on principal, back-ended amortisation or a structure tied to a specific asset

Private credit occupies that space. The lender accepts structures that banks do not offer, and charges for it

The instruments, from the simplest to the most structured

The commercial note is the lightest instrument: a debt security issued by the company, with streamlined documentation.² The debenture is more robust, with an indenture, a trustee, a bondholders' meeting and, where applicable, registration of the offering.³ The receivables fund acquires the company's receivables and advances cash on the strength of the portfolio, not the balance sheet

For infrastructure, incentivised debentures grant individual investors an income tax exemption, which lowers the cost for the issuer.⁴ The more recent infrastructure debentures shift the tax benefit to the issuer itself.⁵

How to compare cost

An honest comparison is not between nominal rates. It is between the all-in cost of each route: the rate, structuring and distribution costs, the security required, the covenants and the constraints they impose, and the cost of refinancing at maturity

A slightly higher rate with a long tenor and no hard collateral may be cheaper overall than a lower rate that requires a fiduciary lien over essential assets and amortisation that squeezes cash. The right question is which route finances the company's plan at the lowest total cost and with the fewest constraints on the business

The covenants that matter

The cost of debt lies not only in the rate but in what it prohibits. The most common covenants cap the ratio of net debt to EBITDA, require minimum interest coverage, restrict dividend distributions and the incurrence of new debt, and trigger acceleration upon a change of control

Negotiating these limits with headroom matters as much as negotiating the rate. A tight covenant in a bad year turns a passing difficulty into a technical default, and gives the lender the power to renegotiate on terms the company would not choose

What the lender looks at

A private lender examines the company more closely than a bank does, because it lacks the same portfolio diversification. It looks at the stability of cash flow, customer and supplier concentration, the quality of governance and the existence of audited financial statements

A company that arrives with audited figures, a coherent projection and formalised governance raises capital more cheaply and with lighter covenants. Preparation for a financing begins months before the first conversation with the lender

When it pays off

Private credit pays off when the company has a plan that requires a tenor or structure the bank will not provide, and when the return on that plan exceeds the spread. It does not pay off as a replacement for cheap, well-structured bank credit simply because it is available

Before going to market, it is worth modelling cash flow under the proposed covenants and testing what happens in a bad year. It is in that year, not in the plan, that the structure shows what it costs

Tiago H. dos Santos, partner in charge, Revenaz Assessoria, September 2026