Lenders of first resort

EAT, a British sandwich chain, was looking for £13m ($20m) last year to tart up its stores. It knew conventional banks would be hesitant to provide such a loan, given its existing debt. Worse, it would soon need to borrow more, to fund a rapid expansion. So it turned to Ardian, an investment firm, which lent it £40m, not just for the refurbishments, but also to refinance its existing debt and to open 90 new stores.

Although Ardian is charging a heady 15% interest rate, says Strahan Wilson of EAT, it is much less bureaucratic and more flexible than a bank. That has allowed EAT to expand 12-18 months faster than it otherwise could have. What is more, he adds, “Now that we’ve established this relationship with Ardian, if we need more capital we need only ask.”

The easiest way for institutional investors to lend to companies is to buy bonds. Many also buy loans originated by banks and repackaged into securities, or invest in funds that purchase non-performing loans from banks. Before the financial crisis American funds began investing in private debt, as opposed to the sort available publicly on the bond markets. This...

via The Economist: Finance and economics Business Feeds

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