AUSTRALIA Trends and Developments Contributed by: Alastair Gourlay, Lewis Grimm, Emily Tsoi and Thanasis Dogoritis, Jones Day
Transfer of Loans Lenders are typically free to transfer their loan commitments without the borrower’s consent in certain circumstances, including to existing lenders, affiliates or related funds of existing lenders, and when an event of default is continu - ing. Where borrower’s consent to the loan trans - fer is required, their consent is usually not to be unreasonably withheld, and would be deemed to be obtained after a certain time period. In recent years, there has been a shift in negotia - tion dynamics for transfer provisions in favour of the borrower/sponsor, characterised by an increasing expansion on the range of loan transfer restrictions. Common transfer restric - tions driven by sponsors include prohibition for loans to be transferred to a private equity fund, distressed debt investor or competitor of the borrower group, and inclusion of transferee lists of approved lenders/disqualified lenders within the loan agreement (often referred to as white lists and black lists), with such lists less com - mon in the Australian private credit market as compared to the US and European markets. Ulti - mately, negotiating transfer provisions remains a balancing exercise between the recognised abil - ity for lenders to trade their loan investments, and the borrower and sponsor’s concern for the lender composition. NAV/Portfolio Financing Net Asset Value (NAV) financing, also known as portfolio or warehouse financing, has gained sig - nificant traction in the Australian private credit market in recent years. NAV facilities allow pri - vate credit funds to obtain loans secured against the net asset value of their portfolio of invest - ments. This form of financing provides fund managers with additional liquidity and flexibility to support various strategic objectives, such as liquidity to fund new investments, manage fund-
level obligations, facilitate distributions to inves - tors and enhance returns for investors. The rise of NAV financing in Australia is driven by several factors. NAV facilities offer an attrac - tive solution by unlocking the intrinsic value of a fund’s established portfolio, particularly when traditional capital-raising options may be limited or less favourable. Additionally, the increased volatility in global markets has highlighted the importance of flexible financing solutions that can help funds to navigate uncertain economic conditions without the need to dispose of assets prematurely. While NAV lending has traditionally been provid - ed by banks, private credit funds are increasingly providing NAV financing to other funds due to its secured nature and the opportunity to build rela - tionships with other fund managers. This growth of NAV reflects a broader trend towards bespoke financing arrangements in the Australian funds finance landscape, and we expected this market segment to continue to expand in the coming months and years. Liability Management During the last decade, the loan market sus - tained long periods of low interest rates and high supply of capital. As a result, sponsors had considerable leverage with lenders to negotiate greater flexibility in debt documents with a view to providing avenues for sponsors to hold on to their equity if their portfolio companies experi - enced financial distress. The oversupply of capi - tal also meant that lenders who pushed back against weakened lender protections would miss out on investment opportunities. Lending paradigms also shifted in global capital markets from an “originate to hold” to an “originate to dis - tribute” model – with facilities becoming broadly
36
CHAMBERS.COM
Powered by FlippingBook