HarbourVest Partners is to set up HarbourVest Senior Loans Europe, a closed-ended investment company tapping the senior secured loan market. It will be incorporated in Guernsey and intended to be traded on the London Stock Exchange.

The company will invest in secondary and primary European senior secured loans of 20 to 30 European private equity-backed mid-market companies with an enterprise value of up to €1 billion (about $1.4 billion). It will be managed by HarbourVest Senior Loan Advisers, an affiliate of HarbourVest Partners.

The loan market has thrown up a wide range of opportunities in the wake of the credit crunch, giving investors the chance to buy loans and bonds at a significant discount to their face value in the hope of selling them off for a profit. 

The loans will be bought from motivated or distressed sellers at a discount to their par value (secondary loans) or will take the form of newly-issued loans (primary loans). No investments will be made in distressed loans. 

It is intended to pay dividends twice a year, with a dividend payable during its first financial year. In addition, the company expects to return capital to investors on a pro rata basis during its life, after an initial two year investment period.