Yield to Takeout
Private Credit glossary · Documentation, Covenants & Terms
Definition
Total expected yield on a discount-priced floating-rate loan, including the pull-to-par over the loan's expected life: y_t ≈ y_c + (Par-Price)/(n · Price), where y_c is current yield, Price is the current fair value, and n is the expected years to repayment (typically 3 years for middle-market loans, shorter than stated maturity due to prepayments and refinancings). Example: a SOFR + 600 bps loan trading at $0.97 with a 3-year expected life yields 10.82% + 1.03% = 11.85%.
Yield to Takeout in plain English
Some loans trade for less than their full face value (say 97 cents on the dollar), and if you hold one until it's repaid at 100 cents, you pocket that 3-cent gap on top of the regular interest — 'yield to takeout' is your TOTAL expected return once you fold in that bonus. The formula y_t ≈ y_c + (Par-Price)/(n · Price) just adds two things: y_c, the ongoing interest yield, plus the discount (Par-Price) spread out over n, the years you expect to wait for repayment. These loans usually get paid off early (around 3 years, not their stated maturity), because borrowers often refinance or prepay. Example: a loan paying SOFR + 600 bps and bought at 97 cents adds its 10.82% interest to a 1.03% yearly boost from the discount, for 11.85% total — like buying a $100 gift card for $97 that also pays you interest, so you win both on the discount and the payments.
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