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.

Investec sells $1.2bn loan book

Investec Australia has agreed to offload its $1.2bn corporate and acquisition finance loan portfolio to Metrics Credit Partners, as it accelerates its exit from this market.

The parties started informing customers of the agreed deal on Wednesday morning, as revealed by The Australian. That was followed by a formal statement by Investec and Metrics about the acquisition, which didn’t disclose the purchase price.

The loan portfolio is a mix of Australian leveraged finance and asset-backed loans, and is being sold as part of Investec’s decision last year to retreat from Australia after 23 years.

Investec Australia country head Milton Samios said the transaction reflected a “very fair price” for the portfolio after the bank received a host of inbound interest in the loan book. He said the loan portfolio divestment — expected to complete by the end of April — was likely to accelerate Investec’s exit from Australia which he’d earlier estimated could take 12 to 18 months.

The transaction will see non bank corporate lender and alternative asset manager Metrics bulk up its loan portfolio, which is more than $6.5bn.

“This is a great outcome for investors because it will add to the diversity and liquidity across our funds and lead to an uplift in expected total returns. The credit quality of this portfolio is sound and provides a great opportunity to expand our relationship with Australian corporate borrowers,” said Metrics’ managing partner Andrew Lockhart.

He said Metrics had conducted extensive due diligence and labelled the Investec loan book a “performing portfolio”, despite the impact of COVID-19.

“The opportunity to acquire this portfolio, particularly where there wasn’t a huge amount of crossover between our existing portfolio and the Investec portfolio… presents a good opportunity to further diversify our funds.”

The loan portfolio comprises leveraged finance and fund finance loans to corporates and funds across business services, entertainment, retail, childcare, healthcare, mining services and financial services in Australia.

Investec’s resource finance and project and infrastructure finance loan portfolios were not included in the transaction.

The Australian’s DataRoom column earlier this month flagged that Metrics was in the race for the Investec portfolio, alongside parties including Macquarie Group, local group Amicaa and Deutsche Bank.

Investec staff were not included in the deal terms with Metrics but the firm has hired one staff member from the closing business.

Mr Lockhart said Metrics was continuing on a growth path and had plans to start a new unlisted fund, after recently kicking off a New Zealand private debt vehicle.

Investec’s local staff and customers were told of the wind down — which impacts about 100 staff — in December.

Investec, which is dual-listed in London and Johannesburg, is aiding Australian staff facilitate a spin-off of the corporate advisory business and is also moving to externalise the emerging companies unit. Mr Samios said those moves were “on track”.

The Australian, 24 March 2021 – Investec sells $1.2bn loan book

For further coverage on this announcement, see below:

Adelaide Now, Herald Sun, The Chronicle (Toowoomba), The Courier Mail, The Daily Telegraph, The Mercury, Weekly Times Now, The Advertiser, Ntnews.com.au, Cairns Post, Townsville Bulletin, Geelong Advertiser, Gold Coast Bulletin.

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