Subordinated Lenders and Private Credit Funds

Definition

Non-bank lenders, often pooled investment funds, that make loans ranking behind senior debt by agreement in exchange for higher yields. Such funds are commonly 'private funds', meaning issuers that would be investment companies but for the Investment Company Act's section 3(c)(1) or 3(c)(7) exclusions^[1], and their contractual subordination is enforced in bankruptcy to the extent it is enforceable under nonbankruptcy law^[2].

Federal law

A market and contract term. No Act of Congress defines it; the federal laws below apply as described.

1. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, § 402, 124 Stat. 1570 (Investment Advisers Act § 202(a)(29), 15 U.S.C. § 80b-2(a)(29)). Defined 'private fund' in the Investment Advisers Act (15 U.S.C. § 80b-2(a)(29)); it does not define private credit. Official text: govinfo.gov, U.S. Government Publishing Office.
2. Bankruptcy Reform Act of 1978, Pub. L. 95-598, § 101 (enacting 11 U.S.C. § 510), 92 Stat. 2549. Enforces subordination agreements in bankruptcy (11 U.S.C. § 510(a)). Official text: govinfo.gov, U.S. Government Publishing Office.