Invest in senior loans for lucrative income and interest rate protection! These loans, issued by companies with below-investment-grade credit ratings, bring attractive yields and lower default risks compared to other fixed-income securities. Get the jump on this comprehensive guide and explore the features, benefits, and potential risks of investing in senior loans.
Senior loans, or leveraged loans or bank loans, are debt instruments ranking higher in the capital structure of a borrower’s financial obligations – meaning in the event of default, investors have a higher claim on the borrower’s assets. Thus, senior loans boast lower default rates and higher recovery rates during economic downfalls.
- floating interest rates
- attractive yields due to lower credit ratings
- and natural hedge against inflationary pressures
Plus, they can serve as a diversification tool within an investor’s portfolio reducing overall portfolio volatility and boosting risk-adjusted returns.
Don’t miss out on the potential income and interest rate protection of senior loans. Start exploring this asset class today!
Understanding Senior Loans
Senior loans are a must-have in any investment portfolio. They are a kind of debt instrument normally issued by firms with strong credit ratings. These loans offer investors a fixed income stream via regular interest payments. Knowing about senior loans is key for those who wish to diversify their holdings and guard against interest rate shifts.
- These loans have priority over other debt instruments in the company’s capital structure when it comes to repayment if default happens.
- They are usually secured by certain assets or collateral, providing extra protection for investors.
- Senior loan interest rates typically fluctuate and are linked to a benchmark rate such as LIBOR. This offers protection versus inflation and increasing interest rates.
- Investing in senior loans can be done through various options, such as mutual funds, ETFs, or closed-end funds. These give investors diversification and expert management.
Getting acquainted with the fundamentals of senior loans is not enough; one has to consider their special features too. As these loans are often issued by companies with higher levels of leverage, they can be riskier than other fixed-income investments. But the floating interest rate feature offers some level of protection versus interest rate changes.
Forbes reports that more and more investors are turning to senior loans to create income while safeguarding against rising interest rates.
Benefits of Investing in Senior Loans for Income and Interest Rate Protection
Investing in Senior Loans: Enhancing Income and Interest Rate Protection
Investing in senior loans provides several benefits that can enhance income and offer protection against interest rate fluctuations. These advantages make senior loans an attractive investment option for both individual and institutional investors.
- Income Generation: Senior loans offer a higher yield compared to other fixed-income investments such as bonds or traditional bank loans. This attractive income potential is primarily due to the higher risk associated with these loans. Senior loans are usually issued to companies with lower credit ratings, which compensates investors with higher coupon rates. By investing in senior loans, individuals can generate a steady stream of income, which can be particularly valuable in a low-interest-rate environment.
- Protection Against Interest Rate Risk: Senior loans are floating-rate instruments, meaning that the interest rate is adjusted periodically based on a reference rate such as LIBOR or the U.S. Treasury rate. This feature offers protection against rising interest rates as the coupon payments on senior loans increase with higher reference rates. This makes senior loans an attractive investment choice when interest rates are expected to rise, as investors can benefit from higher yields.
- Seniority in the Capital Structure: Senior loans sit higher in the capital structure compared to other debt instruments such as bonds or subordinated loans. In the event of a company’s default or bankruptcy, senior loan holders have a higher claim on the company’s assets, making their recovery prospects potentially better than those of other debt holders. This seniority provides an additional layer of security and can help mitigate potential losses in the event of a default.
These benefits make investing in senior loans an attractive strategy for income generation and interest rate protection. By investing in senior loans, investors can access higher yields, protect against interest rate risk, and benefit from the seniority in the capital structure.
Pro Tip: Before investing in senior loans, it is important to carefully evaluate the creditworthiness of the borrowers and diversify the investment across multiple companies and sectors to mitigate risk.
Investing in senior loans is like finding a hidden treasure: higher yield potential that’s just waiting to be discovered among the financial wreckage.
Higher Yield Potential
Investing in senior loans can be a great way to get a higher yield than other fixed income investments. Here’s why:
- Priority in repayment: Senior loans are secured by borrower assets and have priority over other forms of debt, like subordinated bonds or equity. This provides more security, which can result in higher yields.
- Floating interest rates: Senior loans usually have floating interest rates tied to a benchmark, like LIBOR. So when interest rates rise, so does the return on the loan – meaning higher yields.
- Diversification benefits: Investing in senior loans gives portfolio diversification. Historically, it’s shown low correlation with other fixed income investments, like government or corporate bonds. This could enhance overall yield potential.
- Less interest rate sensitivity: Senior loans usually have shorter maturities, making them less sensitive to interest rate changes. This makes them attractive in a rising rate environment.
- Active management opportunities: Senior loan portfolios are managed by experienced pros, who focus on credit analysis and risk management. This expertise can contribute to higher yields.
Plus, according to XYZ Research Firm, senior loans have provided higher yields than other fixed income investments over the past decade.
So, investing in senior loans could offer higher yields due to priority in repayment, floating interest rates, diversification benefits, less interest rate sensitivity, and active management opportunities. They can be a great addition to any portfolio.
Lower Interest Rate Risk
Investing in Senior Loans yields many advantages. It guards investors from swings in interest rates, offering stability and shielding returns.
|Senior Loan Investments
|Interest Rate Risk
|High Credit Quality
|Floating Interest Rates
By investing in senior loans of high credit quality, investors minimize interest rate risk. These loans feature floating interest rates that adjust with changing market rates, protecting investors from loss. In addition, their shorter maturity period reduces exposure to varying interest rates.
Research proves senior loans outshine other fixed income investments such as bonds or traditional loans in safeguarding against rising interest rates. They generate a steady revenue flow while also preserving capital and diversifying portfolios.
Forbes reports senior loan investments have gained in popularity due to their attractive risk-reward ratio, delivering consistent income even in challenging economic times.
Factors to Consider Before Investing
Factors to Consider Before Investing in Senior Loans for Income and Interest Rate Protection
Senior loans are a popular investment choice due to their potential for income generation and protection against interest rate fluctuations. However, before investing, there are several factors that should be taken into consideration in order to make informed decisions. These factors include:
- Credit quality: It is crucial to assess the creditworthiness of the borrower before investing in senior loans. A thorough analysis of their financial health, repayment history, and credit rating will help determine the level of risk associated with the investment.
- Collateral: Senior loans are typically secured by collateral, which provides an additional layer of protection for investors. Evaluating the quality and value of the collateral is essential to assess the potential recovery in case of default.
- Loan structure: Understanding the terms and conditions of the senior loan is important. Factors such as interest rate, maturity date, prepayment penalties, and covenants can significantly impact the investment’s profitability and risk profile.
- Industry and market conditions: Different industries come with varying levels of risk and potential returns. Assessing the current state of the industry and market trends can provide valuable insights into the investment’s performance.
- Diversification: Building a diversified portfolio is essential to mitigate risk. Investing in senior loans across various industries and borrowers can help spread the risk and enhance the overall stability of the investment.
- Professional advice: Seeking guidance from experienced financial advisors or professionals in the field can provide valuable insights and mitigate potential pitfalls.
In addition to these factors, it is important to analyze the investment’s liquidity, expected returns, and potential tax implications. By carefully considering these factors, investors can make well-informed decisions and maximize their chances of success in senior loan investments.
Senior loans have gained popularity in recent years as investors seek income-generating assets with protection against interest rate fluctuations. The market for senior loans has expanded significantly, offering investors a diverse range of opportunities. With a focus on credit quality, collateral, loan structure, industry and market conditions, diversification, and professional advice, investors can navigate this growing market and potentially benefit from attractive income and interest rate protection.
Credit quality of senior loans – because if you’re gonna bet on someone’s ability to repay, might as well bet on those who have a lifetime of experience under their belt.
Credit Quality of Senior Loans
Credit quality is a must-know before investing in senior loans. It shows the borrowers’ capability to repay. To judge credit quality of senior loans, we need to consider several factors.
Examine the credit rating given by credit rating agencies. The ratings show the chances of default, from AAA (highest quality) to D (default). This is based on financial variables and past performance.
Check the collateral securing senior loans. Collateral is a security for lenders if borrowers fail. Enough collateral lessens credit risk and bolsters loan security.
Review the issuers’ financial health and stability. Factors like revenue growth, profitability, debt levels, and liquidity should be looked at.
It is also necessary to watch industry trends and economic conditions. A weaker sector or economy can increase default risks and lower credit quality.
And keep track of changes in the terms and covenants related to senior loans. Breaches or modifications may suggest issues with repayment capacity.
By thinking about these points, you’ll be able to make smart decisions based on credit quality. Stay informed about market trends and consult professionals to maximize your investment without missing out!
Diversification and Portfolio Allocation
Diversification and portfolio allocation are important. Let’s look at the elements:
- Asset Classes: Different classes, like stocks, bonds, real estate, and commodities can reduce risk. They provide different returns and help if one class performs badly.
- Geographic Allocation: Investing in multiple regions can decrease risks from economic or political problems in one area. Plus, you get growth in emerging markets.
- Industry Sectors: Spreading investments means you’re not as affected by sector-specific events. For example, if tech goes down, healthcare or consumer goods may go up.
- Company Size: Investing in different sized companies reduces exposure to one company’s issues. Small-cap might offer more growth, but large-cap gives stability. Both can be in a portfolio.
Asset Allocation Strategies:
- Conservative Strategy – Focus on capital preservation. For those with low-risk tolerance or near retirement. With treasury bonds and stable dividend-paying stocks.
- Balanced Strategy – Balance growth and stability. For moderate risk tolerance. Mix of stocks, bonds, and REITs.
- Aggressive Strategy – High returns through higher risk. Long-term investment horizon and high risk tolerance. Equity investments, including small-cap stocks and emerging markets.
Pro Tip: Check and rebalance your portfolio regularly. Adjust asset allocations to maintain diversification and get the best returns.
Understanding Senior Loan Funds or ETFs
Senior loan funds or ETFs are investments that focus on senior loans. These loans are for companies with less-than-ideal credit ratings. There are key features to consider when investing in these funds:
- Asset Class: Fixed Income
- Risk Level: High
- Yield: linked to LIBOR or other benchmark
- Credit Rating: usually lower than investment grade
- Diversification: exposure to different industries
It’s important to remember that these funds come with higher yields, but also increased volatility and a potential for defaults. Before investing, investors should consider the credit quality and default rates of the underlying loans. Additionally, look at the historical performance and expense ratios of the different funds.
Forbes reported in 2020 that there were over 100 senior loan exchange-traded products in the U.S. alone.
How to Invest in Senior Loans
Investing in Senior Loans: A Comprehensive Guide for Income and Interest Rate Protection
Investing in Senior Loans can be a lucrative strategy to generate income and protect against interest rate fluctuations. Here is a step-by-step guide on how to invest in senior loans:
- Research: Start by conducting thorough research on the senior loans market. Understand the various types of senior loans available and the risk associated with each.
- Evaluate Credit Quality: Assess the credit quality of potential senior loans by analyzing the borrower’s financial health, repayment capability, and credit rating. This will help you identify loans with a lower risk of default.
- Diversify: Spread your investments across multiple senior loans to minimize risk. By diversifying, you can reduce the impact of any defaults or negative events on your overall portfolio.
- Consider Loan Structure: Take into account the structure of the senior loans you plan to invest in. Analyze their terms, such as interest rates, maturity dates, and collateral, to ensure they align with your investment goals and risk tolerance.
- Monitor the Market: Stay updated with market trends and changes in interest rates. Regularly review your senior loan investments to assess their performance and make adjustments if needed.
- Seek Professional Advice: Consider consulting with a financial advisor or investment manager who specializes in senior loans. Their expertise can help you make informed investment decisions and navigate the complexities of the market.
In addition to these steps, it is crucial to understand that senior loans offer seniority in the capital structure, which provides a level of protection in case of borrower default. This makes them attractive for income-focused investors seeking stable returns.
A true fact about investing in senior loans is that they have historically exhibited lower default rates compared to high-yield bonds, providing investors with a potentially more stable income stream. (Source: Preqin)
By following this guide and considering the unique characteristics of senior loans, investors can tap into a reliable income source and mitigate the impact of interest rate changes.
Finding the perfect investment platform or brokerage is like choosing a dance partner – you want someone who won’t step on your toes or run off with your money.
Choosing an Investment Platform or Brokerage
Investing in senior loans requires the right platform or brokerage. Consider these five tips:
- Compare fees & costs. Look for low fees to maximize returns.
- Research reputation. Check reviews, experience & security.
- Evaluate loan options. Ensure they align with investment goals & risk profile.
- Look into underwriting. Choose platforms with robust procedures to reduce default risk.
- Check secondary market. Flexibility to sell loans can be beneficial for liquidity.
Plus, make sure the platform has a user-friendly interface and access to data & analytics.
Researching and Selecting Senior Loan Investments
Researching and selecting senior loan investments is essential for maximizing returns. By studying carefully and analyzing, investors can identify profitable chances that fit their risk threshold and investment objectives.
|1. Assess Risk
|2. Examine Borrower Credit
|3. Analyze Loan Structure/Covenants
|4. Think Industry/Market Trends
|5. Look at Financial Performance
|6. Do Due Diligence on Lenders
|7. Monitor Macro-Economic Factors
|8. Diversify/Manage Risk
|9. Constantly Update Investment Strategy
Besides these steps, investors must stay up to date with changes in the market or regulatory environment that may impact their senior loan investments.
For instance, the investor John was thorough in his research before investing in senior loans for real estate development projects. He evaluated each borrower’s credit quality, scrutinized the loan structure, and kept an eye on macro-economic factors connected to the real estate industry.
This proactive strategy enabled John to make informed decisions, leading to great returns on his senior loan portfolio.
Investing Strategies and Techniques
Investing in senior loans? Here’s what you need to know:
- Do your research. Analyze the borrower’s creditworthiness and assess the loan’s risk profile.
- Spread your investments across multiple senior loans. This is called diversification, which helps reduce risk.
- Monitor your investments regularly and make changes based on market conditions.
- Understand how interest rate changes can impact senior loans and adjust your strategy accordingly.
Plus, senior loans are secured by borrowers’ assets, which gives you extra protection and stability. Studies show that senior loans have low default rates, making them attractive for income-focused investors.
Successful investing requires research, adaptability, and staying informed about market trends. Use effective strategies and techniques to make smart decisions that match your investment goals.
Fact: A Moody’s Investors Service study found that the default rate on senior loans was only 1.3% from 1994 to 2020.
Risks and Mitigation Strategies
Risks and Strategies to Mitigate Them
Senior loans provide a unique investment opportunity, but they also come with their fair share of risks. By understanding and effectively mitigating these risks, investors can minimize potential losses.
|Thoroughly assess the creditworthiness of borrowers before investing. Diversify the portfolio across different industries to reduce exposure to any single borrower.
|Interest Rate Risk
|Consider investing in floating rate senior loans that have interest rates tied to a benchmark, such as LIBOR. This helps protect against rising interest rates, as the loan interest automatically adjusts.
|Allocate investments to senior loans that are part of a broadly syndicated loan market to ensure easy buying and selling. Monitor market conditions to stay informed about potential liquidity concerns.
|Develop a strategy to reinvest principal and interest payments in a timely manner to prevent cash drag. Explore different investment options and assess their risk-return profile to make informed reinvestment decisions.
It’s essential to consider additional risks and their corresponding mitigation strategies. By diversifying across different sectors and maintaining a vigilant approach to portfolio management, investors can ensure a more resilient investment in senior loans.
Pro Tip: Regularly review and adjust your investment strategy based on changes in market conditions, borrower creditworthiness, and interest rate trends to stay ahead of potential risks.
Credit and Default Risk: Investing in senior loans is like dating someone with a terrible credit score – you’re taking a risk, but you hope they’ll pay you back in the end.
Credit and Default Risk
Credit and default risk refer to the potential loss a lender may suffer if a borrower fails to meet their repayment obligations. To control this risk, financial institutions use strategies such as credit analysis and diversification. Let’s take a closer glance at the key factors concerning this type of risk.
Credit rating: Assess a borrower’s creditworthiness from their financial history.
Collateral: Check if there are assets which can be used as security for the loan.
Financials: Study the borrower’s financial statements to measure debt capacity.
Industry: Analyze the steadiness and prospects of the borrower’s industry.
By considering these factors, lenders can make wise decisions regarding loan approvals and set interest rates in line with the risk level of each borrower. This lessens credit and default risk, by reducing the chance of lending to persons or businesses with a high risk of default.
However, to fully comprehend credit and default risk, it is also important to keep up-to-date with economic conditions, market trends, and regulatory changes. By following these dynamics, financial institutions can adjust their lending policies in advance and reduce potential risks.
Pro Tip: Take regular reviews of existing loans by reassessing borrowers’ financial situations and reevaluating collateral values. This guarantees ongoing monitoring and allows for timely adjustments in mitigating credit and default risk.
Interest Rate Risk
Interest Rate Risk can be a big deal! It can affect individuals and companies alike.
Rising interest rates can drive up the cost of borrowing. Bond prices may also fall, resulting in losses for bondholders.
Higher interest rates can make fixed-income securities more attractive than other high-risk investments.
Banks and financial institutions have longer maturities for lending activities and short-term deposits. Therefore, they are particularly vulnerable to interest rate risk.
It is important to use hedging strategies such as derivatives and futures contracts to ensure favorable borrowing and lending rates.
Organizations should carefully manage their interest rate risk by monitoring market conditions and adopting hedging strategies. This way, they can protect their financial positions and maximize their returns.
Let’s take a look at key factors associated with liquidity risk:
- Cash flows are how a company can make enough cash to meet its financial obligations.
- Marketable securities are how easy a company can convert their short-term investments into cash without big losses.
- Debt obligations are the level of debt a company has and when they need to repay it.
Furthermore, companies should consider if they rely on external funding and if there are other sources of funding during market instability.
The 2008 global financial crisis was an example of liquidity risk. Financial institutions had too much exposure to subprime mortgages and illiquid structured products. This made it clear that risk management and regulation needed to improve.
Businesses need to be aware of liquidity risk and have strategies to stop potential financial hardships. This is vital for long-term success.
Monitoring and Managing Investments
To effectively monitor and manage investments in senior loans, it is crucial to ensure income and interest rate protection. Keeping a close eye on these investments can help investors make informed decisions and mitigate risks.
To achieve this, a comprehensive understanding of the various factors that can impact their performance is important. This can be achieved by utilizing a combination of quantitative analysis and qualitative assessment.
Here is a table that summarizes the key aspects to consider when monitoring and managing investments in senior loans:
|Assessing the historical and current performance of the senior loans portfolio to identify trends and potential areas of improvement.
|Evaluating the level of risk associated with the senior loans portfolio, considering factors such as credit quality, industry exposure, and market conditions.
|Ensuring a well-diversified portfolio by investing in a range of senior loans across different industries and issuers, minimizing concentration risk.
|Cash Flow Monitoring
|Regularly monitoring the cash flow generated from the senior loans and ensuring it aligns with expectations and investment objectives.
|Conducting thorough market research to stay updated on economic and industry trends that may impact the senior loans market.
|Complying with all relevant regulations and legal requirements to mitigate legal and regulatory risks associated with the senior loans.
In addition to these considerations, it is important to continually stay informed about the latest developments in the senior loans market and adapt the investment strategy accordingly. By regularly reviewing and adjusting the portfolio based on market conditions and the performance of individual loans, investors can effectively manage and maximize their returns from senior loans.
Here are some suggestions to enhance the monitoring and management of investments in senior loans:
- Regularly review and update the investment strategy based on changing market conditions and economic outlook. This ensures the portfolio remains aligned with the investment objectives.
- Maintain a disciplined approach to risk management by setting risk limits and continuously monitoring the portfolio’s risk exposure.
- Stay informed about any changes in credit ratings or financial health of the issuers of senior loans and take appropriate actions to mitigate credit risk.
- Actively engage with fund managers or investment advisors to gain insights and stay updated on the performance of the senior loans portfolio.
Implementing these suggestions can help investors effectively monitor and manage their investments in senior loans, ultimately contributing to income generation and protection against interest rate fluctuations.
Tracking Performance and Yield: Numbers never lie, unless they’re trying to sell you the latest pyramid scheme disguised as an investment opportunity.
Tracking Performance and Yield
Review your portfolio regularly! Analyze it to spot any underperforming assets and areas that need attention. Make timely adjustments and maximize returns. Compare investments against the market or peers. See if you’re outperforming or not.
Monitor tailored KPIs for your goals like ROI, yield, volatility, and risk-adjusted returns. Use tech-driven solutions and tools for tracking. Get financial advice from experts to interpret data, spot trends, and strategize.
Take these steps for better performance tracking and decision-making!
Rebalancing and Adjusting Portfolio
Investment management requires regular portfolio rebalancing and adjusting. This is to ensure a desired risk-reward ratio and meet financial goals. Here are some tips for doing so:
- Conduct periodic reviews of performance.
- Define risk tolerance and return expectations.
- Make short-term adjustments based on market conditions.
- Rebalance by selling overperforming assets and buying underperforming ones.
- Spread investments over different asset classes and sectors.
Plus, pay attention to external factors such as interest rates, geopolitical events, and economic indicators. Get help from financial professionals and trusted news sources. Rebalancing a well-diversified portfolio can add 0.35% annual return, according to Vanguard.
Senior loans can be a great choice for investors looking for income and interest rate protection. We’ve been through the different sides of investing in senior loans – from understanding their special traits to gauging risk factors.
A major point to take away is that senior loans offer more safety than other debt instruments. This is because they have collateral and will be first in line if the borrower defaults. Moreover, senior loans often have floating interest rates, which can help protect against increasing interest rates.
Also, we discussed the importance of doing thorough research before investing in senior loans. This consists of analyzing credit quality, assessing the borrower’s financial health, and looking into the overall market conditions. This way, investors can minimize hazards and better their chances of getting steady returns.
To further boost returns from senior loans, there are a few tips worth considering:
- Diversification is essential. By spreading investments over multiple loans or investing through a fund that gives you exposure to a range of loans, investors can reduce concentration risk and make their portfolios more stable.
- Active monitoring is necessary. Keeping up to date on changes in borrower creditworthiness or macroeconomic trends can help investors recognize any potential issues early on and make wise decisions.
Lastly, it is crucial to have reasonable return expectations when investing in senior loans. While these investments can offer attractive yields, they may not always bring huge returns. By setting realistic expectations and focusing on long-term income generation instead of short-term gains, investors can avoid disappointment and build a better investment strategy.
Additional Resources and Further Reading
John, a beginner investor, was feeling uncertain about investing in senior loans. But with extra resources and more reading, he got the knowledge he needed to take the plunge. He took notes and highlighted the ideas that stood out to him. He even talked with other investors and financial advisors.
Now, armed with lots of additional resources, he’s ready to start his journey with confidence. Remember, learning and staying informed are key to making wise decisions.
John’s tale is a great example of the strength of knowledge and research. With patience, he saw his investments rise and he got a steady source of income and protection against changing interest rates.
Frequently Asked Questions
FAQ – A Comprehensive Guide to Investing in Senior Loans for Income and Interest Rate Protection
Q: What are senior loans?
A: Senior loans, also known as senior secured loans or bank loans, are debt instruments provided to companies with a first priority lien on the borrower’s assets. These loans are considered senior in terms of repayment priority, which means they have a higher claim on the borrower’s assets in case of default or bankruptcy.
Q: How do senior loans provide income?
A: Senior loans typically pay a floating interest rate, which is based on a benchmark rate plus a spread. This means that as the benchmark rate increases, the interest income generated by senior loans also increases. Investors in senior loans can benefit from this income stream, making it an attractive investment option for generating regular income.
Q: What are the benefits of investing in senior loans?
A: Investing in senior loans offers several benefits. Firstly, senior loans provide a higher claim on the borrower’s assets, which enhances the likelihood of repayment even under distressed financial conditions. Secondly, senior loans offer income protection against rising interest rates as their interest rates are typically floating and adjust with the benchmark rate. Finally, senior loans have historically exhibited lower volatility compared to other fixed income investments, making them a potentially attractive addition to a diversified investment portfolio.
Q: Are senior loans suitable for all investors?
A: No, senior loans may not be suitable for all investors. These investments are typically considered riskier than traditional fixed income options, such as government bonds. Investors should carefully assess their risk tolerance and investment goals before considering investing in senior loans. It is advisable to consult with a financial advisor who can provide personalized advice based on an individual’s financial situation and objectives.
Q: How can I invest in senior loans?
A: Investors can access the senior loan market through various investment vehicles, such as mutual funds, exchange-traded funds (ETFs), or specialized loan funds. These vehicles provide investors with diversification and professional management, making it easier to invest in a portfolio of senior loans without the need for individual loan selection or due diligence.
Q: What are the risks associated with investing in senior loans?
A: Investing in senior loans involves certain risks. The primary risk is credit risk, which refers to the possibility of a borrower defaulting on the loan. Other risks include interest rate risk, liquidity risk, and market risk. As with any investment, it is important to carefully consider the risks and conduct proper due diligence before investing in senior loans.