Investors put a lot of time into researching borrowers and selecting the private credit deals that fit their investment strategy and portfolio. Rollovers give investors a chance to leverage that initial due diligence again by reinvesting principal and interest for maturing or called investments.
In many cases, the deal structure does not materially change and the rollover is just a refinancing or an extension of the interest-only period. The new deal will have additional information available to investors regarding the underlying performance of the note (for example, surveillance reports) in addition to any updated or revised disclosures. Careful review of this additional information will enable the investor to make an investment decision about whether to participate in the new offering.
An existing offering may rollover for a few different reasons, including the borrower’s or underwriter’s desire to refinance, upsize, or extend the underlying interest-only period (and/or reinvestment period for asset-backed type deals)) of the note program. When a borrower or underwriter decides to refinance their existing credit or seek revised terms on the Percent platform, the investors holding the investment are presented with the option to participate or not in the rollover. A private credit rollover gives investors the opportunity to reinvest their capital (principal and any unpaid accrued interest to the call date) in a new deal from the same borrower once the initial private credit deal is called or matures.
Many investors choose this option, because it lets them extend their relationship with a borrower or underwriter they already know, and on whom they’ve already conducted due diligence. For investors, there are several benefits:
- By participating in the refinancing or subsequent financing rounds of the borrower’s existing credit facility, investors have the potential to receive continued returns.
- Investors can adjust their investment amount in subsequent offerings, giving them flexibility in how and where they deploy their capital. Rollovers provides investors with a new opportunity to fine-tune their portfolio based on evolving financial goals, risk appetite, and changing market conditions.
- With a familiar investment structure and with more familiarity with the borrower, investors can reevaluate the new opportunity with a greater understanding of potential risks and rewards the investment offers. Investors often cite a prior track record with a particular borrower as a key factor in their continued investment.
When borrowers opt to rollover to raise additional capital, investors have the option to once again specify the APY rate at which they are willing to invest, as well as the amount, which may be higher than their original threshold. If the borrower refinances the original investment at a higher rate in the new offering, investors can benefit from higher returns. If for some reason the deal goes into amortization, principal will be returned to the investor and interest rate returns will decrease as less principal is outstanding.
Can rollovers be canceled? Why might that happen?
Prior to the closing of the new note, the borrower or underwriter, depending on the offering, may opt to rescind the call of the original note, thus canceling the rollover transaction. Although this is not a common occurrence, rollovers can be canceled for multiple reasons, including:
- The borrowers or underwriters may decide to cancel the rollover if they did not raise enough capital at an attractive rate for the new note, or they may have secured alternative financing replacing Percent investors.
- Percent or an underwriter may also decide to cancel a rollover if any material changes to the credit quality of the underlying borrower arise or are identified during the syndication of the note, or if any required conditions for closing are not met (such as documentation execution, overcollateralization requirements, or inability to confirm wire instructions).
How to Invest Rollovers with Percent
Recent platform enhancements make rollovers easier than ever.
Step 1 – Notification
As an investment approaches its call date, amortization, or maturity date and a rollover is available, investors will see a Rollover button in their portfolio page. This signals that a new eligible deal is available for participation from the same borrower.
Step 2 – View the investable balance
ClickingRollover displays the investment form for the new deal from the same borrower. This provides the details of the new offering plus a button to Invest in this Deal.
The investable balance is the total amount that can be reinvested into the new deal. It encompasses the projected paymentfrom the current investment and the available cash balance* in the investor’s Percent account.
Step 3 – Choose your amount
Investors can choose to rollover all or some of the projected payment, up to the total investable balance, subject to any minimum and maximum investment amounts of the deal. This lets investors reallocate their capital based on their current portfolio objectives and/or align to any new liquidity needs.
Step 4 – Choose your investment(s)
Investors can choose to roll each eligible investment separately into a new rollover note issued by that borrower.
If an investor has multiple investments for the same note program available to roll over, their Projected Payment will contain the aggregate rollover amount across all investments. Under these circumstances, this should be rolled over in a single transaction – e.g., investors should not rollover each deal separately.
No rollover occurs without an explicit investor request and instructions.
Step 5 – Investment allocations are finalized and investors are notified
Investment allocations are finalized once an offering closes. At that time, investors are promptly notified of the fulfillment of investment requests based on the total demand.
Rollovers put you in control
Rollovers give investors the chance to continue participating in a borrower’s note program or exit an investment ahead of time, if the note is called before its original maturity. Percent’s enhanced platform simplifies the entire process, from identifying opportunities to accessing up-to-date documentation on the new offering to taking action once a decision is made. It’s just another way Percent puts investors in control and makes private credit investing more accessible and transparent.
*Your available cash balance is calculated as total cash balance minus cash allocated for pending investments and pending withdrawals.