Finchcliff Advisory

FINCHCLIFF ADVISORY

Private credit explained: start with the structure

Private credit is debt arranged outside the broadly traded public bond market. That description is a starting point, not a verdict on quality or suitability. The useful questions come next: who owes the money, who controls the lending decision, what must happen for repayment, where each claim ranks and how an investor can exit.

This guide provides a map of those questions. It does not describe a current offer or establish that any structure is available or appropriate in a particular jurisdiction.

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The label covers several different structures

Private credit usually means lending provided outside banks in which the debt is not publicly traded or widely issued. The route from capital provider to borrower can still vary considerably. A reader may be looking at a pooled fund, a direct loan, a listed vehicle that owns private loans, or a note issued by one company. Similar language can therefore describe different legal claims and different concentrations of risk.

Structure What the holder owns Where the credit decision sits First evidence to locate
Pooled private credit fund Units, shares or an interest in a vehicle that owns loans The fund manager selects and monitors borrowers Fund terms, portfolio information, valuation policy, leverage, fees and redemption rules
Direct loan A contractual claim against a borrower The lender or lending group underwrites the borrower Loan agreement, borrower financials, covenant package, security and priority documents
Listed vehicle holding private loans Shares or units in a traded vehicle The vehicle's manager chooses the underlying loans Public reports, portfolio disclosures, valuation method, leverage and trading information
Single issuer note or debenture A creditor claim against the named issuer The issuer deploys the proceeds under the instrument terms Issuer identity, note terms, use of proceeds, repayment plan, security and ranking

These categories can overlap, and terminology differs between documents and jurisdictions. The legal documents, not the marketing label, determine the claim. ASIC's MoneySmart explains that private credit funds may lend directly, buy existing loans or invest through other funds. Its guidance also distinguishes unlisted funds, funds traded on exchanges and listed investment trusts. That is a useful reminder that access format and underlying asset are separate questions.

Follow the cash before judging the return

A promised payment schedule shows when cash is due. It does not prove where the cash will come from. A review should identify the primary repayment source and the assumptions behind it.

  • Operating cash flow: Can the borrower service interest and principal from ordinary operations, and what evidence supports that forecast?
  • Refinancing: Does repayment depend on a new lender being willing to advance money at maturity?
  • Asset sale: Is value based on an independent, current and suitably stressed valuation, and can the asset be sold in the required period?
  • Capital raise or sponsor support: Is additional funding committed, conditional or merely expected?

Consider a hypothetical loan with 1,000,000 of principal due at maturity. The forecast assumes 600,000 will come from accumulated cash and 400,000 from refinancing. Even if operating cash arrives as planned, the loan still has a refinancing dependency. The review should test the refinancing conditions, timing and fallback options rather than treating the maturity date as evidence of payment certainty.

Security helps only if the details work

"Secured" is not the same as guaranteed. The relevant questions include what assets are covered, who owns them, whether claims that rank ahead exist, how value was established, which law governs the security and what enforcement may cost or delay. A security package can reduce loss in some outcomes without preventing default.

The same discipline applies to guarantees. Identify the guarantor, the exact obligation, any cap or condition and the guarantor's capacity to pay when the borrower cannot. A guarantee from a weak or closely connected entity may add little practical protection.

Seven risks that deserve separate answers

  1. Borrower default: Interest or principal may be late, restructured or unpaid.
  2. Valuation: Private assets may be valued infrequently or using assumptions that are difficult to test.
  3. Liquidity: A fund redemption right or a vehicle's exchange listing does not make every underlying loan liquid.
  4. Concentration: One borrower, sector, geography or repayment event can dominate the outcome.
  5. Leverage: Borrowing at the fund or vehicle level can amplify both gains and losses.
  6. Fees and conflicts: Origination, management, performance, monitoring and related party arrangements can alter incentives and net outcomes.
  7. Information and governance: Sparse reporting, weak valuation controls or unclear responsibility make it harder to detect deterioration.

ASIC's 2025 private credit work highlighted opaque remuneration, related party transactions, governance, valuation and inconsistent terminology as areas requiring attention. Those findings concern the Australian market and should not be turned into a universal legal conclusion, but the underlying review questions travel well.

A practical sequence for reviewing a programme

  1. Map the parties. Identify the borrower, issuer, fund, manager, lender, security trustee, custodian and distributor where relevant.
  2. Map the legal claim. Establish what the holder owns, who owes each payment and where the claim ranks.
  3. Map the money. Trace subscription proceeds to their intended use and trace interest and principal back to their expected source.
  4. Test the downside. Ask what happens if revenue falls, refinancing disappears, valuations decline or an exit is delayed.
  5. Check the evidence. Record the document owner, evidence date and unresolved questions rather than accepting a verbal summary.
  6. Separate structure from eligibility. A clear structure does not establish that an offer may be marketed or acquired in a particular territory.

Professional firms can use Finchcliff's private credit evidence request sheet to organise that work. The earlier guide on reading a loan note explains why a fixed coupon does not make repayment guaranteed.

How Finchcliff fits

Finchcliff Advisory builds and supports professional distribution relationships around underlying investment programmes. Its role does not turn a structure label into an approval or replace a firm's own legal, regulatory, tax, suitability or investment review. The professional partners page explains the intended working relationship, while how Finchcliff works sets out the broader process.

Sources and limitations

Sources were checked on 20 October 2026:

This material is general education. It is not investment, legal, tax or regulatory advice, an offer, or a statement that a programme is approved or available in any jurisdiction. Private credit structures can result in delayed payments or loss of capital. Read the governing documents and obtain appropriate professional advice before acting.