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.

Livewire: Where we see opportunities for lending

A desire to forge his own path led Andrew Lockhart from a 26-year career with National Australia Bank to strike out to form what is now one of Australia’s most successful non-bank lenders, Metrics Credit Partners.

The Metrics co-founder and Managing Partner reflects on the people and experiences that shaped his path and instructed the approach that underpins the corporate lender and alternative asset manager.

Lockhart describes how his grandmother kicked off an early passion for investing; walking away from a quarter-century banking career to co-found his own venture, and how Metrics’ approach has enabled it to survive and thrive since launching in 2013.

In the following interview, Lockhart outlines how his team sidesteps transactional risk and reveals the blacklisted sectors that have helped to preserve his investors’ capital.

LIVEWIRE – 17 December 2020

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