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.

MCP Master Income Trust (ASX:MXT) successfully raises $191.8 million in oversubscribed wholesale placement

Metrics Credit Partners’ MCP Master Income Trust (ASX:MXT) raised in excess of $190 million via a wholesale investor placement to further diversity its loan portfolio.

MXT issued more than 95 million units in the trust at $2 each in a placement to institutional and wholesale investors.

Andrew Lockhart, Managing Partner of Metrics Credit Partners, welcomed the outcome of the capital raising, which was oversubscribed.

“We are very pleased to continue to see strong investor interest in our funds and we thank investors that participated in the placement. The positive response to the offer reflects robust demand from investors for sources of attractive and stable income and is a great endorsement of the quality of our investment team and the strong track record of the fund.

“MXT continued to deliver reliable monthly income throughout 2020 even as many equity investors experienced reduced income as companies cut their dividend payments to repair their balance sheets – and this proven performance is underpinning ongoing investor appetite to invest in MXT,” Mr Lockhart said.

“Metrics will use the proceeds of this capital raise to further diversify the trust’s portfolio in order to reduce risk, enhance returns and further reduce costs over time.”

After initially planning to issue up to 95 million new units, Metrics issued 95,924,161 new units, in response to strong demand.

As Australia’s first ASX-listed corporate loan fund and the country’s largest credit LIT, MXT recently celebrated a three-year track record of successful performance. Launched in October 2017, MXT opened up a sector of the fixed income market that was previously only available to institutional investors and banks.

Since inception (through to the period ending 31 March 2021), MXT has delivered a net return of 5.30%, a spread of 4.30% p.a. above the RBA cash rate, and well above its target of 3.25% over the RBA cash rate. MXT is positively rated by all the major ratings agencies, including a ‘Superior’ investment rating by Australia Rating Analytics (Australia Ratings) and a ‘Highly Recommended’ by Zenith Investment Partners.

MXT’s current portfolio encompasses 154 corporate loans (as at March 31) diversified across industries and the credit spectrum.

Corporate loans offer stable cash yields with low risk of capital loss. They are also an inflation hedge and add diversity to an investment portfolio because of their low correlation to public equities and bonds.

Metrics is Australia’s largest non-bank lender in private debt and credit and has in excess of $7 billion in assets under management across its strategies.

Mr Lockhart said the successful capital raising will assist Metrics to continue to provide a source of nonbank funding to corporate Australia as businesses seek to pursue growth opportunities in the rebounding economy.

“As Australia’s economy shows its resilience yet again and recovers apace from the pandemic-led downturn, business confidence is rising and we are experiencing strong demand for credit from corporate borrowers across industries,” he said.

Joint lead managers on the offer were Taylor Collison, Morgans Financial, Ord Minnett and Wilsons Corporate Finance. Pinnacle Investment Management was appointed as distribution partner to Metrics. Minter Ellison acted as legal adviser to MXT.

26 April, 2021

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