Does anybody here have experience setting up a small high-yield fund / LLC to invest his own money? I am thinking about something along these lines:
• Limited liability structure (trying to make this non-recourse)
• $4mm invested in 10 to 20 high-yield corporate bonds (say blended 8% yield)
• ~$1mm in equity contributed
• $3mm (?) borrowed
I’d like to understand how a lender would look at providing leverage for the fund, i.e. interest charged, indicative debt to equity ratio, security package (inc. personal guarantees), need to re-equitize if debt trades below certain thresholds, etc. Also, what banks would be the most likely lenders (I assume those with strong wealth management practices, but I may be wrong).
On paper the returns look really attractive, but I’m sure that there must be a catch somewhere…
I unfortunately can't give you an answer but I'd love to hear about this as well.
It would be great if someone could also shed some light on how this would work in Europe.
You will not get 75% ltv on 8% yielding debt from a bank as an individual investor at a rate that is not dilutive to your equity absent some personal guarantee (and only then if you have a lot of other assets)
High yield is a very tough asset class for individual invesors or small players, especially in the portion of the universe that yields ~8% in this rate environment. On a $4mm portfolio of 10-20 names you will get destroyed by transaction costs and bid/ask spread on trades
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