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Asset Classes

BrightSpring’s area of focus are Liquid & Semi-Liquid Leveraged Loans and High Yield securities. 


Liquid and Semi-Liquid Leveraged Loans: 


Liquid or Semi-Liquid Leveraged Loans or Institutional loans are large, syndicated loans made primarily to corporate borrowers and sold to institutional investors such as mutual funds, insurance companies, hedge funds, collateralized loan obligations (CLOs), and pension funds. They are a subset of the broader leveraged loan market and typically consist of Term Loan B (TLB) facilities, which differ from Term Loan A (TLA) that is usually held by banks.


Key Characteristics:

 

  • Higher Risk & Return: Borrowers are often sub-investment-grade, which makes these loans higher-yielding but riskier than investment-grade loans.
     

  • Covenant-Lite: Many institutional loans are structured with fewer financial covenants (or are “covenant-lite”) compared to loans held by banks.
     

  • Floating Rate: Typically, the interest rate is floating and based on a benchmark rate like SOFR plus a spread, providing a hedge against rising interest rates.
     

  • Secondary Market Trading: Institutional loans are often traded in a secondary market, enhancing liquidity for investors, serves as an excellent risk management mechanism and allows investors to make relative-value investment decisions.
     

  • Syndication: The loans are typically syndicated by investment banks to a wide range of institutional investors.
     

  • Institutional loans are commonly used for leveraged buyouts (LBOs), recapitalizations, refinancings, and corporate growth initiatives. 

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High Yield Bonds


High Yield Bonds, also known as junk bonds, are corporate bonds with credit ratings below investment grade (typically below BBB- by S&P and Fitch, or Baa3 by Moody’s). Because of their lower credit quality, they offer higher yields to compensate investors for the high credit risk.


Key Characteristics:

 

  • Higher Risk & Return: Issued by companies with weaker credit profiles or higher leverage. They offer attractive yields as compensation for the risk of default.
     

  • Fixed Rate: Typically pay a fixed coupon over the life of the bond, making them sensitive to interest rate changes.
     

  • Maturity Range: Generally issued with maturities ranging from 5 to 10 years.
     

  • Callable Features: Many high yield bonds are callable, meaning the issuer can redeem them before maturity, often after a specified period.
     

  • Secondary Market Trading: Traded over-the-counter (OTC) with liquidity varying by issuer and market conditions.
     

  • Covenants: High yield bonds often include restrictive covenants to protect investors, although they are generally less stringent than those of leveraged loans.
     

  • Use of Proceeds: Commonly used for leveraged buyouts (LBOs), acquisitions, refinancing existing debt, or general corporate purposes.

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