The “Fuelling the Recovery – Credit Investment Opportunities ahead” session at the TMA Conference looked into the crystal ball of issues and opportunities arising for investors in the current credit market.
Although there is currently a huge weight of available capital, the panel saw opportunities arising in the following areas.
- Industry sectors which banks may be exiting. These create opportunities for alternative lenders. Thermal coal was mentioned several times in this context.
- Asset based lending (ABL), where banks would otherwise be constrained by interest coverage ratios and other cash flow metrics. It was noted ABL can often provide the breathing room required for an operational turnaround.
- Refinancing inventory and receivables finance.
- Lower quality credits, where banks perceive they may need to enforce or trade their position, in the near term. This trend has been notable following the banking Royal Commission.
- The renewable energy sector, with the upcoming maturity dates for financing of the older projects in the current wave of investments.
Trends to watch include:
- the impact of various current unknowns (including whether CBD vacancy rates and other second-order impacts of COVID will persist) as well as several warning signs (including Evergrande and the weakening Chinese property market);
- the impacts of lockdowns on the construction industry and the withdrawal of stimulus on the retail industry;
- developments in China and the drop in iron ore prices, expected to have a very significant impact on Australia; and
- borrowers expecting better pricing and covenant light structures, notably in pre-sales covenants on development projects, due to the availability of capital in the market.
The panellists were Premjit Kaur (Managing Director, Fortress Investment Group), Dan O’Donoghue (Head of Agribusiness – Private Credit, Merricks Capital), Michael Phillip (Chief Investment Officer, Tanarra Restructuring Partners) and Samantha Findley (Director, Gordon Brothers Capital Moderator), with Jonathan Henry (Partner, McGrathNicol) as moderator.