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.

S&P confirms A- ratings for two Metrics Credit Partners funds

S&P Global Ratings has assigned A- ratings to Metrics Credit Partners (Metrics) Diversified Australian Senior Loan Fund (DASLF) and Real Estate Debt Fund (REDF).

Metrics Managing Partner, Andrew Lockhart, has welcomed the ratings, “The A-band ratings are endorsement of our strong credit processes,” he said.

S&P Global Ratings affirmed the A- rating for DASLF, saying it has very strong risk-adjusted leverage and a low underlying credit risk profile relative to its peers. DASLF holds a unique position as the only fund offering investors exposure to Australian corporate debt across the credit spectrum and provides a distinctive investment option for those seeking higher yields, S&P said.

The A- rating for REDF was also affirmed. S&P said it expects REDF to maintain its strong risk-adjusted leverage and that the Metrics underwriting practices supported the fund’s overall performance:

“Metrics has been investing in real estate debt through DASLF and other funds since 2013, deploying the same investment committee, trustee, and governance structure as REDF. Metrics’ consistent investment performance and governance structure demonstrate sound risk-management practices, in our view.”

Metrics manages more than $11 billion across 10 funds providing institutional and retail investors access to highly attractive Australian and New Zealand private debt.

8 June 2022

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