NEW ZEALAND Trends and Developments Contributed by: Josh Cairns, Dominic Toomey, Stuart Evans and Matt Mazenier, Simpson Grierson
successfully participated in select financings in the New Zealand market (either as direct bilateral lenders or as part of small club deals), and domestic private credit funds, although fewer in number, are increas - ingly well positioned to compete for larger mandates as their capital bases scale. The New Zealand corporate market is also gener - ally characterised by conservative leverage levels and borrowers’ preference for traditional relationship banking. This dynamic has historically reduced the appeal of private credit solutions for which a major point of differentiation is the ability to deliver high - er levels of leverage by way of a simpler financing structure. However, borrower perceptions are steadily shifting as private credit becomes better understood and more widely recognised as a complementary and flexible alternative to bank financing. Importantly, the overall picture is one of meaningful and accelerating change. Over the past several years, New Zealand has seen increasing appetite among mid-market borrowers – both sponsor-backed and founder-owned – for non-bank capital solutions. Sev - eral factors are driving this momentum. • Increasing availability of capital – a growing pool of domestic and offshore asset managers are actively targeting Australasian private credit opportuni - ties. Domestic asset managers, in particular, have benefitted from greater access to institutional and foreign capital, enhancing their ability to participate in a larger and more diverse range of financing mandates. • Enhanced structuring flexibility – private credit funds are able to offer tailored solutions, accom - modate bespoke capital structures, or support non-traditional financing requirements (for exam - ple, where speed of execution is crucial or where borrowers require financing structures and/or cove - nant packages that fall outside conventional bank parameters). In addition, the willingness of credit funds to accept “new-to-market” deal terms that are widely accepted in other finance markets may position those funds more favourably with borrow - ers and financial sponsors (particularly those with a global presence).
• Greater borrower awareness – mid-market corpo - rates, in particular, have become more familiar with private credit as an alternative financing solu - tion, aided by developments in more established markets such as Australia and the growing role of domestic debt advisers in arranging financing for borrowers across the credit spectrum. This increased awareness is contributing to broader acceptance and adoption of private credit across a variety of sectors. Key Developments and Market Trends The coming years are likely to be formative for private credit in New Zealand, driven by both macroeconomic developments and shifts in the local investment land - scape. Evolving regulatory capital settings A major driver behind the growth of the private credit market in New Zealand has been the increasingly con - servative prudential regulation to which the country’s registered banks are subject. Whilst this challenge is neither novel nor unique to the New Zealand market, New Zealand’s regulatory capital settings have tradi - tionally been more stringent than those prescribed in comparable markets. Moreover, the Reserve Bank of New Zealand’s ongoing transition from a light-hand - ed approach to prudential regulation to becoming a more proactive regulator has given rise to continued uncertainty over the future of New Zealand’s pruden - tial regulatory environment. As has been the case in other similar markets, this has created a natural opening for private credit funds, whose capital is not constrained by the same pruden - tial regime, to meet borrowers’ demand for tailored financing solutions. The result is a steadily expanding role for private credit in segments of the market where bank balance sheets are less able to respond to evolv - ing borrower needs. While regulators in other markets are actively con - sidering reforms to increase regulatory oversight of private capital (particularly private credit), there has, to date, been no indication that a similar level of regula - tory scrutiny will be applied to private capital in New Zealand.
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