Direct lending

Besides stable, floating-rate returns, investors in direct lending to UK corporates can also benefit from:

• diversification: companies that we lend to are typically too small to issue public bonds and are not in leveraged loan indices as they are smaller or not private equity owned
• seniority: loans are typically senior level and pari passu to any existing or future bank financing
• structural protection: covenants on loans act as an early warning system and allow us to work with the company to resolve any problems

Since 2008, UK companies have found it significantly harder to raise financing through the traditional route of commercial bank loans. Direct lending has helped to plug this gap for many small, creditworthy companies in need of alternative sources of funding, and often non-bank lenders lend alongside banks.

Our direct lending team provides senior, floating debt finance directly to mid-sized UK companies. These assets typically do not have public ratings, so require that we do more credit and legal analysis than when investing in public corporate bonds.

In response to the lending gap that developed during the financial crisis, we launched the UK Companies Financing Fund in 2009, the first institutional fund of its type, drawing on our experience of investing in private placements since 1997.

As a result of the fund’s success, HM Treasury chose M&G to take part in the Business Finance Partnership and a second fund was launched in 2012.