Are leveraged loans critical to PE?

• Easier access to capital
• Typically lower interest payments

Which side of the coin would you like the advantages from?

For the investor: - Senior status in capital structure - Typically shorter term - Floating interest rate

For the sponsor: - Easier access meaning that there is less regulatory framework (don't have to register debt with the SEC, etc.) - ~18 weeks from origination to disbursement of capital - You know exactly how much you'll be getting (price talk might not equal the price when the issue hits the market for HY)

The above posts are somewhat correct but miss a lot of the main points.

Reasons investors like loans (as opposed to pari bonds): Floating rate (can be replicated in HY but off-the-run) Maintenance Covenants

Reasons sponsors like loans: Prepayability helps to build equity value (bonds typically carry call protection for a number of years and even then can only be broken at a premium, in most cases) Loans can be easily amended

I was referring particularly to why loans are important for PE investors when doing acquisitions. And why is PE activity down when the lev loan market is down? Can't they replace that with HY (assuming there is a HY market)

The only good point that I can think of is (like the above poster said), the fact loans are amortized and hence increase equity value. Deleveraging is a value lever in itself.