Does a slowing economy increase the risk of loan defaults in private debt?

Well-run private debt funds use rigorous scenario testing and real-time monitoring to mitigate risks. Historical net write-offs by banks peaked at just 0.68% during the GFC and were 0.04% in September 2024, demonstrating strong resilience across economic cycles.

Does a loan default always result in a credit loss?

No. Private debt investors are protected by their seniority in the capital structure. Senior debt holders get repaid first, before subordinated debt, preferred equity, and common shareholders. Covenants and controls act as early warning signals allowing lenders to engage with borrowers to mitigate financial loss.

Are all private debt managers the same?

No. Private debt managers differ significantly in scale, credit skills, and experience. Quality managers need sizable assets under management, bank-level credit skills, extensive networks, and the ability to directly originate and diversify loans across borrowers to achieve optimal outcomes.

Does commercial real estate debt put capital at risk in a property downturn?

Property owners face greater risk than lenders. With typical loan-to-value ratios of 60%, owners' equity acts as a buffer. Even if property values fall significantly, lenders can compel borrowers to restore their position or pursue asset sales to maximize recovery without necessarily incurring losses.

Are non-bank lenders lenders of last resort?

No. Competent private debt managers lend to quality companies and often compete with banks or work alongside them in lending syndicates. Post-GFC regulations requiring banks to hold more capital have created financing gaps that private debt fills for established companies with sound fundamentals.

A Band Ratings Secured For Two Metrics Credit Partners Loan Funds

Metrics Credit Partners has secured ratings in the A band for two of its loan funds despite a volatile year for financial markets raising concerns about credit quality.

S&P Global Ratings has assigned an A- rating to the Metrics Credit Partners Real Estate Debt Fund (REDF) and affirmed its A- long term and A-2 short term credit ratings on Metrics’ Diversified Australian Senior Loan Fund (DASLF).

The ratings agency also assigned an A-2 short term credit rating to REDF, noting the fund has low leverage, significant permanent capital, and fund terms that support liquidity.

“We view REDF’s low leverage as a key credit strength,” the announcement by S&P said.

“Metrics’ consistent investment performance and governance structure demonstrate sound risk management practises, in our view.”

Sydney-based Metrics has the backing of a number of large superannuation funds and is one of Australia’s largest non-bank corporate lenders.

A statement by Metrics Credit Partners said the DASLF, which has about $3.3 billion under management, invests in a diversified portfolio of corporate loans including loans to public and private companies, commercial real estate, and leveraged and acquisition finance. Exposures are diversified by industry, tenor and credit quality.

“In our view, DASLF holds a unique position as the only fund offering investors exposure to Australian corporate debt across the credit spectrum and providing a distinctive investment option for those seeking higher yields,” S&P said.

Managing Partner of Metrics Credit Partners Andrew Lockhart said the ratings underscored the quality of the funds’ portfolios and were also testament to stringent origination and risk management processes.

“Metrics has demonstrated a proven track record of delivering both capital stability and attractive returns, even when markets are at their most volatile,” he said.

“These ratings highlight the benefits of investing in the market through well-managed and diversified funds.”

Metrics Credit Partners has been providing institutional and wholesale investors access to the corporate loan market since 2013. Metrics has more recently also focused on providing retail investors with greater access to the market.

Fixed Income News Australia, 8 April 2021 – A Band Ratings Secured For Two Metrics Credit Partners Loan Funds

For further coverage on this announcement, see below:

Advisor Voice, 9 April 2021 – Two Metrics Credit Partners loan funds secure ‘A’ band S&P ratings

‍

Email us
invest@metrics.com.au

1300 010 311
Mon-Fri 9:00 - 5:30