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.

Metrics signs Joint Finance Industry Statement

We are pleased to announce that we have signed the Joint Finance Industry Statement on the Government’s proposed Safeguard Mechanism reforms.

The safeguard mechanism, in place since 2016, seeks to limit emissions from Australia’s biggest polluters – 215 oil, gas, mining and manufacturing facilities.

Reform to the mechanism, which the government plans to finalise in April to take effect on July 1, will strengthen emissions cuts with some leeway for trade-exposed industries, such as liquefied natural gas (LNG). It is key to achieving Australia’s target to cut carbon emissions by 43% from 2005 levels by 2030 and achieve net zero emissions by 2050.

Legislating emissions reductions for Australia’s largest emitters will support Australia to achieve our climate targets and attract further capital for the net zero transition – helping to ensure our industries maintain access to cost-effective capital and remain competitive in a net zero global economy.

As Metrics works towards our science-based emissions reduction targets for financed emissions, we will continue to support our clients and customers to reduce their emissions and build resilience to climate change.

Read the full statement here.

9 March 2023

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