Comparison with high yield bonds

	Institutional Leveraged loans	High Yield Bonds	Mezzanine Loans
Type of instrument	Floating rate private loan	Fixed rate public bond	Floating rate private loan
Security	Comprehensive	Usually none	Second lien
Ranking	Usually first priority	Subordinated to all debt both structurally and contractually	Contractually subordinated to senior debt
Information provision	Full dilligence package at launch, ongoing budget, monthly management accounts and quarterly covenant compliance certificate	Information memorandum prepared by underwriter at launch; Public semi-annual accounts	Full dilligence package at launch, ongoing budget, monthly management accounts and quarterly covenant compliance certificate
Covenants	Generally comprehensive with flexibility for higher quality issuers	Incurrence-based; Less restrictive	10% wider than senior debt covenants
Income	Cash pay - floating	Cash pay - fixed	Part cash pay - Floating, part PIK
Coupon Spread	500-550bps over Libor	700-750bps over Treasuries	1000-1200bps over Libor
Prepayment	Generally callable at any time, sometimes have 1-2 year call premiums	Usually 3-5 years non-call period	Callable at 102, then 101 then par
Tenor	7-9 years	7-10 years	5-7 years
Liquidity	Actively traded private market	Actively traded public market	Thinly traded private market

Leveraged loans and second lien/mezzanine loans often provide a complimentary source of capital with High Yield Bonds, being issued by sub-investment grade companies or equivalent where an external rating does not exist.

There are some important differences between these asset types summarised in the above table.

Source: as at 30 December 2011

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