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.

Eureka Report Podcast: The current opportunity for non-bank lenders

Evan Lucas from the Eureka Report speaks with the Managing Partner of Metrics Credit Partners, Andrew Lockhart, to discuss the new Metrics Direct Income Fund, why he views now as an opportunity for non-bank lenders, and his outlook on the corporate credit world amid COVID-19.

“This week’s fund manager interview is with Andrew Lockhart, Managing Partner of Metrics Credit Partners, discussing his new fund, the Metrics Direct Income Fund.

It’s all about basically providing corporate debt exposure for retail clients. They want to offer 3.25 per cent above the RBA cash rate with a monthly payment, and also how he sees the corporate credit world in the COVID-19 era.

A fascinating talk, have a listen.

Here’s Andrew Lockhart, Managing Partner of Metrics Credit Partners.”

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Further information regarding the Metrics Direct Income Fund can be found here.

Eureka Report – 6 August 2020

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