Institutional investors are increasingly turning to private credit as a means of generating yield while maintaining downside protection. Unlike traditional fixed-income instruments such as government or corporate bonds, private credit consists of non-bank loans issued to corporations and other borrowers.
Size of Global Private Credit Market
These loans are often structured to provide attractive risk-adjusted returns while offering greater flexibility in terms of repayment and collateralization.
One key segment within private credit is senior secured loans, which have become a core component of diversified portfolios for wealth managers, family offices, and investment funds. These loans are particularly attractive because they prioritize lender protection while offering floating interest rates that help mitigate the risks of rising inflation.
But what exactly are senior secured loans, and how is tokenization modernizing access to this asset class?
What Are Senior Secured Loans?
Senior secured loans are privately negotiated loans issued to corporations, typically by banks or institutional lenders. These loans are “secured” because they are backed by collateral, meaning lenders have a legal claim to specific assets if the borrower defaults. Additionally, they are considered “senior” because they hold the highest priority in the borrower’s capital structure—meaning they are repaid first in the event of liquidation.
Institutions often prefer senior secured loans because they offer:
- Higher Security & Capital Preservation – As the most senior obligation in a company’s debt stack, senior secured loans are backed by collateral, providing a layer of protection in the event of default.
- Floating Interest Rates & Inflation Resilience: Typically tied to benchmarks like SOFR, these loans adjust with rising interest rates, helping investors hedge against inflation.
- Attractive Risk-Adjusted Returns: Compared to investment-grade bonds, senior secured loans offer higher yields while maintaining strong downside protection.
- Portfolio Diversification: With low correlation to equities and traditional fixed-income assets, senior secured loans help create a more balanced investment portfolio.
- Stability in Uncertain Markets: Their secured nature and floating-rate structure provide relative stability, particularly during periods of economic uncertainty or monetary tightening.
Risk-Return Profile of Senior Secured Loans
Senior secured loans are higher-yielding than traditional corporate bonds but with lower risk than subordinated debt or equities. Risk considerations include:
- Credit Risk: Borrowers are typically mid-sized to large companies, some with leveraged balance sheets. However, the collateralized nature of these loans provides a cushion for investors.
- Liquidity Risk: Unlike public bonds, senior secured loans are privately issued and not exchange-traded, making them relatively illiquid. However, secondary markets for these loans have grown in recent years.
- Default Risk: While defaults do occur, recovery rates for senior secured loans are historically higher than for unsecured debt—often exceeding 60%.
That said, senior secured loans have historically delivered:
- Yield Premiums: Compared to investment-grade corporate bonds, they offer higher interest rates.
- Stable Cash Flows: Institutions benefit from steady income streams, making them a viable alternative to traditional fixed-income investments.
- Inflation Hedge: Since most loans are floating rate, they reset periodically, reducing interest rate risk in rising-rate environments.
Bringing Senior Secured Loans On-Chain with Tokenization
While traditionally limited to institutional investors, tokenization is now making senior secured loans more accessible. The tokenization of private credit strategies allows investors to access these institutional-grade loans in a more liquid and transparent manner. By representing a senior loan strategy as blockchain-based tokens, investors can benefit from:
iSNR: A Tokenized Private Credit Strategy in Action
To meet the increasing need for great accessibility to senior secured loans, DigiFT has partnered with Invesco to bring a tokenized private credit strategy to institutional and accredited investors.
Through this partnership, DigiFT launched the Invesco US Senior Loan Strategy (iSNR)—a structured note token that tracks the performance of a private credit strategy, predominantly secured by senior first-lien loans, managed by Invesco.
Invesco is one of the world’s largest asset managers, overseeing nearly $1.9 trillion in assets (February 2025). With over 30 years of experience in private credit, Invesco is recognized as a leader in institutional-grade senior secured loan strategies.
This collaboration provides accredited and institutional investors with on-chain access to a senior loan strategy managed by Invesco. Unlike traditional private credit funds, which often require multi-year lockups, iSNR introduces daily liquidity—the first of its kind—offering greater flexibility and accessibility to investors while maintaining exposure to institutional-grade credit.
What’s Next?
Senior secured loans offer institutional investors a compelling blend of yield, security, and diversification. With advancements like tokenization, access to this asset class is becoming more democratized, allowing a broader range of investors to benefit from its advantages. As the financial landscape continues to evolve, senior secured loans are poised to remain a cornerstone of sophisticated investment strategies.
Disclaimer: DigiFT and/or its affiliates endeavor to ensure the accuracy and reliability of the information provided, but do not guarantee its accuracy and reliability and accept no liability (whether in tort or contract or otherwise) for any loss or damage arising from any inaccuracy or omission or from any decision, action or non-action based on or in reliance upon information contained on this article. This is not an advertisement making an offer or calling attention to an offer or intended offer. Before making any investment decision, please seek independent legal and financial advice.
