Private debt has emerged as an increasingly important source of corporate financing, yet we know surprisingly little about which firms actually receive it. This study provides the first large-scale analysis of firm-level determinants of private debt financing, drawing on a unique dataset that merges over ten million Italian company-year observations with proprietary data on 373 direct lending transactions from AIFI. Link to the full paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5683402
Key Findings:
Private debt funds target a distinct “sweet spot” in the market—mid-sized, moderately profitable firms with stable cash flows and intermediate levels of collateral. They systematically avoid loss-making companies, excessively risky borrowers, and highly asset-intensive firms that banks readily serve.
The results reveal telling non-linear relationships: the probability of receiving private debt initially rises with firm size, profitability, and risk, but declines beyond certain thresholds. This suggests PD funds occupy a precise niche—firms too large or risky for traditional bank criteria, yet not candidates for public bond markets or distressed debt investors.
Policy Implications:
Private debt complements rather than substitutes for bank finance, extending credit to firms just outside conventional lending criteria. In bank-dependent economies like Italy, this can strengthen financial resilience by channelling institutional capital to underserved mid-market companies.