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Unknown

Let's take a look at the credit markets now. In fact, investors well, I guess our knowledge of credit markets certainly has to has increased over recent weeks, given what's transpired in the banking sector with the bond holders particularly suffering, as we saw in terms of Credit Swiss, So what about private credit? Let's get into that. The opportunities seen in that space at the moment.

00:00:23:20 - 00:00:52:01

Unknown

Mark Sherwood joining us from my partners, Mark. Very good to catch up with you again. Thanks for joining us again on Ausbiz. So, of course, it's all about tighter credit conditions at the moment in the wake of the banking crisis. So what trends are we seeing develop as far as private credit is concerned? Yeah, private credit has grown enormously, Andrew, And that's done nothing just in the last short term, but particularly even over the last 5 to 10 years.

00:00:52:02 - 00:01:14:06

Unknown

I think the statistics say that globally private credit has grown by about ten fold over the last decade. So it really speaks to how big a role private credit is playing in general credit markets. And when we talk about private credit, really what we're talking about here is lending to private businesses, and particularly that the banks are not taking off.

00:01:14:07 - 00:01:33:21

Unknown

So so the marketplace is enormous and it obviously closely correlates to what's happening in public markets. So when we're seeing the volatility that we're seeing in the public markets in the last week or two, particularly if if credit spreads generally widening or in a risk off environment that does flow through to the to the private markets as well.

00:01:33:21 - 00:01:52:20

Unknown

So we've seen a little bit of push widening in yields and that also gives a little bit more choice to the investor as to what they what they want to look at and what they are willing to receive to take on a particular credit risk. Yes. So we've obviously seen very certainly since the global financial crisis that that evolution of private credit.

00:01:52:20 - 00:02:16:19

Unknown

But what happens in that space when markets are volatile markets, volatile, investors do step back a little bit. We saw that probably a little bit when in the last week or so when the sort of global banking crisis hit the markets where it was a little bit of nervous kind of coming through in private credit markets as well.

00:02:17:02 - 00:02:40:23

Unknown

I think the adjustments shifts the bias a little bit towards the investors hands as opposed to the borrowers. Hands of borrowers almost have to become a little bit of price takers in a generally bearish market environment. They're still very good quality businesses out there, businesses with sound and stable cash flows that are looking to borrow from the private markets.

00:02:41:06 - 00:03:03:20

Unknown

But they probably lose a little bit of power when when markets are generally in a very state. So it probably just swings the bias a little bit towards the investors hands. It gives the investor a little bit more negotiation that the holder of the capital that's in demand. And it probably just makes the cost of capital just start to swing higher for those private companies.

00:03:04:02 - 00:03:36:24

Unknown

So, yeah, in times like this where we see those building economic headwinds is a case where private credit funds pull back on excuse me, their position in the in terms of the size of those debt facilities. Yeah, size is probably come down a little bit. People will require stronger covenants in there in their documentation. If we're talking asset backed and real estate transactions, people tight tend to tighten up their their threshold or their comfort zone around a loan to valuation ratios.

00:03:37:07 - 00:03:59:15

Unknown

So all these different dynamics that go into any lending deal got fleet straight across to the to the private markets as well. So people can can afford to be a little bit more choosy in what they're willing to put their their capital into. And then they can often negotiate slightly stronger terms in terms of covenants and and lower LV odds and these kind of metrics in a particular deal.

00:03:59:15 - 00:04:19:12

Unknown

And and we've been doing that ourselves. Which particular sectors are we seeing growth at the moment in in private to credit deals. The non-bank lending sector in Australia is is very active and it has been active for the last 4 to 8 months. We've got a couple of things on the go right now for some of the non-bank lenders.

00:04:20:01 - 00:04:50:04

Unknown

We're not talking necessarily about buy now, pay later, but true credit organizations with extensive credit licenses that do extensive credit work on their borrows. These types of organizations are of real interest to to very them, to the investor. And and they rely on the private credit markets to get the get the capital that they have that they need to continue to grow their business in a sound and and measured way which we've seen in the sector.

00:04:50:04 - 00:05:21:14

Unknown

So definitely the sort of non-bank lenders are really utilizing the private credit markets in Australia. What's happening in the real estate space at the moment, Mark, obviously we know what's happened to those prices, but does that actually encourage more deals to be done? I think it's different a lag in prices and I think then those generally in real estate are a little bit reluctant to move towards where the reality is.

00:05:21:15 - 00:05:46:19

Unknown

So I think we're still in this period of lag between witnessing in prices, giving the buyer a little bit more choice, an opportunity that then vendor is coming down to to meet those those prices. I think it's going to continue this way and there's no doubt that vendors will get a little bit more realistic and they'll probably be some really interesting buying opportunities across across the range of of real estate sectors for us.

00:05:46:19 - 00:06:21:03

Unknown

We're definitely seeing some interesting deals both on the equity side as well as the debt funding side. We're active in a debt funding deal in the institutional market right right now, which is a very large CBD office construction type of asset. So there's there's some really interesting opportunities out there for the investor in the strength there is that there's not already you can afford to to to be selective venues will get a little bit more realistic I think, in the next couple of months in Australia particularly, and that will create some new opportunities for us.

00:06:21:04 - 00:06:45:06

Unknown

For the investor, I was looking at recently, it's some of the some of the news in in the real estate sector and pointing to there have been a lot of pub acquisitions lately. I've gathered the also involved in that space as well. Yeah, we've been involved in that space for a few years. Andrew And, and we're actually raising a further now, doing it for the capital, raising for a pub acquisition in, in suburban Adelaide.

00:06:45:24 - 00:07:10:11

Unknown

So there's some unique opportunities to buy freehold, freehold land, pub opportunities in Adelaide where you've got very strong operating earnings from the, the operations of the pub. And then obviously you've got some potential growth in the land and particularly if you can, if you can buy an asset where you can not utilize the space, the land a bit more, a bit more effectively.

00:07:10:11 - 00:07:36:00

Unknown

So that's really our focus there. We like, we like the suburban hop style asset, particularly if you can buy at a very decent prices, i.e. with reasonable cap rates. Quite different I guess to the dynamics of trying to buy a kind of pub accommodation, hospitality asset in a major city where, where, you know, prices are always very, very competitive.

00:07:36:09 - 00:07:55:02

Unknown

If you can look at some of the other regional towns, you can find that there's some some unique buying opportunities if you're if you're on the ground and selective. So yeah, that's a that's a quite an active space for us and we like both the the freehold ownership of the property in the land as well as the earnings that can come from the operating entity.

00:07:55:19 - 00:08:20:13

Unknown

And Mark, given interest rates remain so dynamic at the moment, what needs to be considered, particularly if you're focusing on where you're making the comparison between fixed and variable? Yeah, the fixed variable component, I would say there was a massive shift in product, particularly in terms of investor demand across the floating maybe a year ago when when everyone was starting to expect all the rate rises.

00:08:20:19 - 00:08:59:14

Unknown

Now that's now that we've had such incredible amounts of right increases and obviously you've got a market that's pretty actively talking about the risks or the necessity perhaps later this year of of potential rate cuts. We're now seeing a real shift sideswipe. So investors now are probably more interested in in looking at transactions on a fixed rate basis where they know that they can lock in a certain level of return, perhaps for the next two or three years, if it's a if it's a two or three year term deal and kind of decrease the risk that they're going to make it lower earnings on their on their money in the next couple of years if

00:08:59:14 - 00:09:26:09

Unknown

rates indeed do do start cutting to the end of this year or through next year. So there's been sort of two two swings. We saw a strong swing towards a preference of floating rate deals and floating rate returns. Now, definitely people are very conscious of of the chances that rates will be cut if our if we're forced into recessionary type environment and and people are very happy to lock in some some decent returns for a couple of years.