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.

Non-bank lender raising driven by SMSF investors

An Australian non-bank corporate lender has revealed that investments from self-managed super funds have been a major driver behind its capital raising, of which it has received more than $300 million in subscriptions.

Metrics Credit Partners said it’s undertaking the capital raising for its ASX-listed MCP Master Income Trust (ASX: MXT) to generate further funds to meet increasing demand for loans from corporate, project and commercial real estate borrowers.

It noted that its current $638 million entitlement and shortfall offer is being snapped up, with subscriptions of more than $300 million already received from SMSFs, high-net-worth individuals and other investors.

Metrics noted MXT has consistently delivered its investors a net return of 5.45 per cent a year since listing in October 2017.

“Corporate, project and commercial real estate borrowers are increasingly seeing non-bank lenders as an important source of capital, closing the gap left by the banks,” said Metrics managing partner Andrew Lockhart.

“Investors are increasingly recognising this shift in the market and the opportunities it provides them to gain exposure to the private credit market and an investment that is uncorrelated to listed equities or bonds.

“The fund provides an easy way for investors of all types to replace their declining fixed income and term deposit returns with a higher, yet consistent and diversified, source of income.”

Taylor Collison Limited is acting as lead arranger, with other joint lead managers being Morgans Financial Limited, Ord Minnett Limited and Wilsons Corporate Finance Limited.

Bell Potter Securities Limited and Escala Partners Pty Ltd are co-managers, while Pinnacle Investment Management Limited is the distribution partner.

SMSFAdviser Magazine – 25 February 2020

‍

Email us
invest@metrics.com.au

1300 010 311
Mon-Fri 9:00 - 5:30