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Myths about the use and risk profile of junior capital often stem from misconceptions that overlook the protections that experienced, disciplined lenders put in place to deliver compelling risk-adjusted returns. Today’s junior capital is a time-tested, durable form of financing, offering high-quality, sponsor-backed borrowers flexibility and the capacity to invest in growth.
Contrary to common misconceptions in junior capital:
- Subordination does not mean high risk and low quality. We believe borrower quality, portfolio manager experience, equity cushion size, covenant packages and sponsor support are far greater determinants of risk. Investors could boost risk-adjusted returns by moving down the capital stack and providing junior capital for high-quality companies
- Payment-in-kind (PIK) is now commonplace and often structured at origination to provide flexibility and support for successful value creation.
- Managers can deploy regardless of macroeconomic conditions, demonstrating durability through economic cycles.
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The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance does not predict or guarantee future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
Important information on risk
Investing involves risk; principal loss is possible. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, derivatives risk, dollar roll transaction risk and income risk. As interest rates rise, bond prices fall. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Foreign investments involve additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. Please note investments in private debt, including leveraged loans, middle market loans, and mezzanine debt, are subject to various risk factors, including credit risk, liquidity risk and interest rate risk.
This information represents the opinion of Nuveen, LLC and its investment specialists and is not intended to be a forecast of future events and or guarantee of any future result. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. There is no assurance that an investment will provide positive performance over any period of time.
Nuveen, LLC provides investment solutions through its investment specialists. Churchill Asset Management is a registered investment advisor and an affiliate of Nuveen, LLC. This information does not constitute investment research as defined under MiFID.
