AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
structures and able to leverage their experience overseas to adapt these products to the domes- tic market. As such, the increased presence of the private credit providers has resulted in the importation of terms from the US and European markets, including “covenant-lite” structures, payment-in-kind interest and other more flex- ible borrower-friendly terms. However, in the current high interest rate environment, the com- petitive tension between traditional bank loans and private credit fund products have played out in interesting ways. Sponsors who have histori- cally looked to raise debt in the unitranche and TLB financing markets have being considering traditional bank loans more frequently as a viable option for implementing their proposed trans- actions, due to the banks offering lower pricing and a willingness by some sponsors to forgo flexibility in terms for economics in the current macroeconomic environment. The lending activities of private credit provid- ers are likely to come under more scrutiny in the future, with the Australian corporate regulator, Australian Securities and Investment Commis- sion (ASIC) currently considering the regula- tory framework underpinning the private credit market, as evidenced by the discussion paper released by ASIC in February 2025. ASIC’s focus seems to be on governance, valuation practic- es, management of conflicts of interest and the exposure of retail investors to the private credit market (indirectly through compulsory superan- nuation contributions, with superannuation funds providing a significant portion of the private cap- ital). As such, any new regulatory requirements are likely to take the form of increased disclo- sure and transparency, aimed at improving mar- ket integrity and investor outcomes, rather than addressing perceived or actual risks to financial stability, with ASIC’s view being that the Austral-
ian private credit market is relatively small in size when compared to other jurisdictions. 1.2 Corporates and LBOs From a sponsor perspective, acquisition finance activity in Australia is primarily driven by private equity firms. In this respect, a number of the large global private equity firms have a pres- ence in Australia (including Affinity, Bain Capital, Blackstone, Carlyle, KKR and TPG). In addition to the global players, a number of domestic pri- vate equity firms are also active in the acquisi- tion finance space (including BGH Capital, CPE Capital, PEP and Quadrant). M&A-related activity remained relatively sub- dued in 2024, despite showing a few signs of recovery. While inflationary pressures eased slightly, the cost of funding remained high, with the Reserve Bank of Australia maintaining a cau- tious approach on monetary policy, announcing the first reduction in the official cash rate in Feb- ruary 2025, after opting to hold the official cash rate steady in 2024 and the aggressive increases in the official cash rate during 2022 and 2023. Geopolitical challenges abroad and economic uncertainty also contributed to the reduced level of M&A activity. Due to the reduction in M&A activity, and the “wait and see” approach adopted by sponsors in relation to exiting their current investments, there was an increase in refinancings, repricings and shorter-term loan extensions in the Austral- ian loan markets in 2024. The authors expect this trend to continue in 2025, particularly given recent tariff announcements in the US and the Australian federal election in May 2025.
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