As traditional fixed income assets face persistent headwinds from inflation to interest rate volatility, private corporate lending is gaining traction among ultra-high-net-worth (UHNW) investors as a compelling alternative income strategy. With structural protections, floating-rate exposure, and historically low default rates, middle market direct lending may offer a differentiated risk-return profile.¹  

At IEQ Capital, we believe that disciplined access to this segment can serve as a core allocation within income-oriented portfolios. 

The Rise of Corporate Lending in Private Credit 

Corporate lending refers to making private loans (typically senior secured loans) to middle market companies that may be underserved by traditional banking institutions. These borrowers are often well-established, growth-oriented companies with stable cash flow but limited access to syndicated debt markets. Because these loans are privately negotiated, they are often structured with strong lender protections, including maintenance covenants, call protections, and seniority in the capital stack. Typically, this structure enables investors to earn higher yields than are usually available in public credit markets, while maintaining downside awareness.¹ 

Why Investors Are Turning to Corporate Lending

• Higher Yields Relative to Public Markets
  • Direct lending strategies have consistently delivered a yield premium over both high-yield bonds and investment-grade credit. These excess returns are driven by the complexity and illiquidity premiums associated with private transactions, and they are often paired with tighter lender protections than those found in public markets.¹ ²

• Stronger Control and Protections
  • The majority of private loans are still structured with meaningful covenant protections, in contrast to the broadly syndicated loan (BSL) market where over 90% of loans are now covenant-lite. As of Q1 2025, just 13% of private credit loans lacked covenant protections.⁴ We believe these terms provide lenders with early warning signals and intervention rights, which may improve recovery outcomes in adverse credit scenarios.⁴

• Resilient Fundamentals in the Middle Market
  • Middle market borrowers have demonstrated solid operating performance despite higher borrowing costs. Recent data shows median revenue growth of 20% and EBITDA growth exceeding 45% year-over-year, while private credit default rates remain at a modest 2.67% — roughly half that of high yield bonds.⁵ ⁶ ⁷

• Structural Tailwinds from Regulatory Shifts
  • With traditional banks scaling back their lending due to more stringent capital reserve requirements, private lenders have stepped into the gap. This shift has created a favorable environment for well-capitalized and disciplined credit managers to negotiate better terms and enhance risk-adjusted returns.³ 

“Our research team maintains deep visibility into the private credit landscape through manager relationships, underwriting model reviews, and strategy-level stress testing. This diligence allows us to identify high-conviction lending strategies and offer clients differentiated, institutionally vetted access to opportunities that often remain unavailable to the broader marketplace.” — Tim Altman, Senior Director at IEQ Capital 

Illustrative Characteristics of a Private Direct Lending Deal

While no two private loans are identical, the following example illustrates structural features that may be sought by some private credit managers when underwriting middle market borrowers: 

• Loan Size: $40 million senior secured term loan 

• Loan-to-Value (LTV): Approximately 55%, based on enterprise valuation 

• Interest Rate: SOFR + 650 basis points (floating rate) 

• Covenants: Financial maintenance covenants, such as a quarterly leverage test and minimum EBITDA thresholds 

• Other Terms: Call protection in early years, potential board observer rights, and equity co-investment by the sponsor 

Note: These characteristics reflect a composite of recent mid-market direct lending deal terms sourced from industry research and IEQ Capital manager diligence. Actual terms vary by borrower, structure, and sponsor strength. 

We believe these terms may help improve risk-adjusted outcomes by offering contractual income, early warning triggers, and influence borrower governance. However, such features are not guaranteed and depend heavily on the manager’s negotiation leverage, underwriting discipline, and the borrower’s profile. Qualified investors should not assume all private credit deals contain these terms or offer similar protections.⁴ 

Key Considerations for Evaluating Private Credit Managers

For qualified investors, manager selection is central to the successful implementation of a corporate lending strategy. The private credit landscape is highly fragmented, opaque, and manager dependent. Because each manager differs in how they source, underwrite, structure, and monitor loans, careful evaluation of these attributes can have a meaningful impact on both income generation and downside protection. 

• Origination Advantage 
  • Managers with proprietary deal sourcing or direct borrower relationships may access higher-quality opportunities and negotiate more favorable loan terms. In contrast, managers reliant on intermediated or syndicated flow often face greater pricing pressure and possess weaker structural control.³ 

• Underwriting and Structuring Discipline 
  • The ability to conduct thorough due diligence and negotiate protective terms, such as senior secured status, financial covenants, and amortization schedules, can materially influence downside outcomes. Loan structures that emphasize downside protection are especially critical during periods of economic stress.⁴ 

• Portfolio Construction and Diversification 
  • Diversification across industries, geographies, and borrower profiles can reduce idiosyncratic risk and promote more stable return profiles. Investors should review the concentration limits, average position sizes, and sector allocations to understand how a manager balances return targets with risk control.¹  

• Ongoing Risk Monitoring 
  • Strong credit managers often implement active post-close monitoring, including periodic financial reviews, covenant compliance tracking, and escalation protocols for underperformance. These tools can help protect principal by identifying credit deterioration early and enabling proactive engagement.⁵ 

Alignment of Interests 

When general partners invest alongside limited partners in a meaningful way, it can signal long-term commitment and improve alignment. Additionally, transparency in fee structures and return-sharing arrangements provides clarity on the manager’s incentives. 

 “Private credit presents meaningful complexity for clients — ranging from opaque underwriting and variable liquidity terms to non-standard reporting and nuanced tax exposure. Our job is to navigate that on their behalf. We work one-on-one with the goal to simplify access, align each allocation with their broader goals, and open the door to high-quality credit strategies typically reserved for institutional investors.” — Rob Skinner, Founder and Managing Partner at IEQ Capital.  

Risks to Consider: While private corporate lending offers the potential for enhanced income and structural downside protection, it is not without meaningful risks. For qualified investors, understanding these risks and how they are managed is critical to making informed allocation decisions within a broader portfolio context. Credit Risk: These loans are typically extended to non-investment-grade borrowers, which introduces a higher risk of default. Recovery outcomes depend on loan structure, collateral quality, and the manager’s ability to proactively manage through distress.⁵ Liquidity Risk: Private credit funds generally offer limited liquidity and often feature multi-year lockup periods. Investors should evaluate whether this allocation fits within their broader portfolio needs and liquidity framework. Valuation Risk: Private loans are not publicly traded. Valuations are typically conducted on a quarterly basis and may lag behind movements in public markets. Transparency in valuation methodology and the involvement of independent third parties are essential to maintaining investor confidence. Structural and Concentration Risk: Portfolio construction plays a central role in risk mitigation. Investors should assess whether a manager avoids excessive exposure to any single borrower or sector, and whether protections such as financial covenants, seniority in the capital structure, and collateralization are consistently enforced. 

Why It Matters for UHNW Families 

For UHNW families, private corporate lending can potentially: 

• Provide enhanced income potential relative to public bonds. 

• Offer structural protections through covenants, seniority, and collateralization. 

• Diversify portfolios with low correlation to public equities. 

• Introduce floating-rate exposure that may help offset interest rate volatility. 

When thoughtfully integrated, corporate lending can complement both traditional fixed income and private market allocations. 

IEQ Capital’s Perspective 

At IEQ, we believe private corporate lending can serve as a foundational building block in income-oriented portfolios, particularly for qualified investors seeking to enhance yield while maintaining strong credit discipline.  

In today’s environment of persistent rate volatility and evolving capital market dynamics, disciplined exposure to middle market direct lending offers meaningful diversification and potential downside resilience. 

We invite you to speak with our investment team to explore how corporate lending may align with your portfolio objectives. 

 

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Sources

1. Cliffwater, Direct Lending Performance Summary, September 2024. 
2. J.P. Morgan, Private Credit Outlook, October 2024. 
3. Morgan Stanley, Middle Market Credit: A Shift in Power, December 2024. 
4. Reuters, Covenant Trends in Private Credit, April 2025. 
5. Proskauer, Private Credit Default Index, January 2025. 
6. Fitch Ratings, U.S. High Yield Default Report, December 2024. 
7. KBRA Private Credit Review, August 2024. 

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Corporate Lending 

-Credit Risk: Private companies are usually unrated or below investment grade and may be more susceptible to default. 

-Competitive Risk: Direct Lending is a crowded space with lenders competing on price and weaker covenants. 

-Liquidity Risk: There is no guarantee that a fund’s liquidity mechanisms will be reliable, and the managers are under no obligation to provide liquidity. In a downturn where investor outflows increase materially, investors are likely to experience periods of gating and potentially will be unable to redeem fully. 

-Mark to Market Risk: Certain portfolios may own liquid loans or mark to liquid markets, resulting in fund volatility. 

-Tax Risk: Lending is generally tax-inefficient, and post-tax returns may be materially lower than pre-tax returns. 

This material is as of the date indicated, not complete, and subject to change. Additional information is available upon request.  No representation is made with respect to the accuracy, completeness, or timeliness of information, and IEQ assumes no obligation to update or revise such information. The information set forth herein has been developed internally and/or obtained or derived from sources believed by IEQ Capital, LLC (“IEQ Capital”) to be reliable. However, IEQ Capital does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does IEQ Capital recommend that the attached information serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such.  It is not intended to be, nor should it be construed or used as investment, tax, accounting, legal or financial advice. IEQ provides no assurance or guarantee that any investment will be successful or that any returns will be achieved. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.