hard · Private Credit & Debt fund-structures-returns-economics
A levered direct-lending fund holds a $100M unitranche loan yielding 9.0%. It finances the position with a $40M asset-based facility at SOFR+250, with SOFR at 4.50% (so the all-in borrowing rate is 7.0%), leaving $60M of LP equity in the position.
Ignoring fees and defaults, what is the levered annual cash return on the LP equity, and what is the position's net interest-rate sensitivity if both the loan coupon and the facility rate are floating off the same index?
- About 10.33% on equity, with roughly neutral net rate sensitivity because the asset and the facility both reprice with the index
- About 15.0% on equity, with positive rate sensitivity since the asset is larger than the borrowing
- About 10.33% on equity, with negative rate sensitivity because the facility cost rises faster than asset income
- About 9.0% on equity, with neutral sensitivity since the spread of 2.0% is fully offset by the borrowing cost
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