THE ECONOMICS OF THE PRIVATE MARKET
Finance companies have traditionally participated in the lower-rated or mezzanine sector of the private bond market, specializing in collateralized debt or debt with equity kickers. Rates in this sector of the market may be fixed or floating. Finance companies' choice of this market sector follows naturally from their historical concentration in secured or asset-based lending. Returns on private placements required by finance companies are generally well in excess of the yields on the less risky, straight bonds purchased by insurance companies.
According to market participants, the participation of finance companies in the private market is much more concentrated than that of insurance companies. Among the twenty largest finance companies, only a half dozen or so provide a significant volume of funds, although some others are attempting to expand their presence in the market. Outside the top twenty, few finance companies participate at all.