AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
1. Market 1.1 Major Lender-Side Players
structured, distressed or mezzanine financing in Australia with banks traditionally being the larg- est players in the acquisition finance market. While Australia remains a bank-led market (par- ticularly in comparison to the USA and Europe), private credit providers such as institutional non-bank lenders and private credit funds and, more recently, Australian pension/superannua- tion funds are rapidly gaining significant market share, particularly in large-ticket transactions, with the private credit market accounting for AUD205 billion of the total loan market in Aus- tralia. Private credit providers are increasingly attrac- tive to sponsors, particularly given their willing- ness to offer a range of products not offered by the major domestic banks, such as unitranche or Term Loan B (TLB) facilities and their tendency to underwrite and hold credits on their balance sheets, often leading to faster decision making and deal execution due to the elimination of syn- dication risk. The changes in the ESG landscape have also presented interesting opportunities for private credit providers to provide fund- ing to borrowers where banks have retracted capital due to ESG concerns (for instance, the authors have seen this particularly in the coal and defence sectors). Pension and superannua- tion funds have also been a key provider of funds for social and affordable housing developments, often in combination with institutional lenders and government grants. Private equity firms have gravitated towards these private credit providers and products to benefit from higher leverage multiples, less cov- enants, longer tenors, reduced amortisation and more permissive terms This is particularly the case with the large international private equity funds, such as those identified in 1.2 Corporates and LBOs , which are very familiar with these
There is a long history of M&A activity in Austral- ia, and so leveraged finance is a well-understood and active area for financiers and sponsors alike. The financing of acquisitions in Australia was historically the domain of banks, both domestic and international, but is becoming increasingly occupied by non-bank, institutional and private credit funds. Banks Australia’s major domestic banks (Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation) have traditionally been active in the acquisition finance market. These banks often take leading roles in arrang- ing acquisition facilities and often provide a sig- nificant portion of the debt commitments them- selves. The major domestic banks compete with a range of foreign and local investment banks, such as Jefferies, UBS, Deutsche Bank, Macquarie, Bank, JP Morgan, Morgan Stanley, Bank of America, Citibank, Royal Bank of Canada and Goldman Sachs, particularly on large-ticket (eg, AUD1 billion plus) transactions, which typically require an underwritten facility. Foreign banks, such as HSBC, MUFG, SMBC, Mizuho, Bank of China and ICBC, are also very active in taking senior debt positions as part of a syndicate, with Chinese banks regularly funding Chinese investment into Australia. Institutional Lenders and Private Credit Providers Historically, debt funds’ and institutional lend- ers’ participation was limited to involvement in
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