Banks that previously raced to bankroll Australia's private credit boom are now tapping the brakes. In recent months, lenders have toughened terms and, where they can influence use of proceeds, in some cases nixed deals altogether, according to people familiar with the shift. New financing is being funneled to the largest, top tier private market managers, with smaller funds or those concentrated in Australia's stressed property sector finding it harder to secure fresh lines. Existing commitments are largely still in place, the people said.
Goldman Sachs Group Inc. and UBS Group AG are among those becoming more selective. Representatives for both firms declined to comment. An executive at one Australian private credit manager said that over the past month he had not received any of the bank outreach calls that used to arrive two or three times a week offering debt warehouse capacity.
Global banks built this business quickly in recent years, supplying capital that funds could deploy into loans or to handle investor withdrawals. Their financing takes multiple forms: debt warehouses that supply bank capital for fresh originations; net asset value lending - often referred to as back leverage - in which a fund secures borrowing against a portfolio; plus bespoke credit lines and A/B note structures where a loan is tranched and the higher-risk piece remains with the private credit fund.
Pricing has been lucrative. People briefed on these offerings say interest is typically set between 100 and 650 basis points over the cash rate, with around 350 basis points over the cash rate a common level depending on the product. Those economics encouraged banks to promote warehouse facilities and to see them drawn.
Thanks to the way these financings are stacked in the capital structure, banks are first in line, so they generally only face losses if the collateral behind the loans falls sharply. Belinda Bible, chief operating officer at Corval Avenue Ltd., a real estate fund manager, summed it up this way: "Banks like these facilities because they provide attractive income at a relatively low risk." She added that funds use them to expand their capital base, which can lift overall returns.
Deals are rarely public, but announced transactions tallied by Bloomberg News over the past five years exceed A$2.9 billion. Among the disclosed deals: Goldman Sachs and Morgan Stanley led two distinct A$500 million warehouse facilities for Pallas Capital; Standard Chartered Plc arranged a A$513.5 million revolving credit line for Metrics Credit Partners; and UBS provided a A$200 million warehouse commitment to Centuria Bass Credit.
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This pullback lands as private credit faces multiple headwinds. Roughly 50% of Australia's A$200 billion private debt market ties back to property, heightening vulnerability as the slump worsens. In August, Bathla Group - a Sydney-based developer - went into insolvency with liabilities of A$3.4 billion, most of it to private debt managers, as softer housing markets have crimped sales for developers reliant on non-bank lenders. Regulators have also stepped up action against improper fund offerings.
Rates are at a 15 year high, and the central bank has cautioned that more hikes may still come. Because most private credit loans float, higher official rates translate into bigger bills for borrowers.
While the latest size of bank financing to funds is hard to pin down, the trend line has been steep. Reserve Bank of Australia and Australian Prudential Regulation Authority data show warehouse and other funding provided to non banks climbed to A$98 billion by the end of 2022 after a decade of steady increases, with no newer readings capturing what many say were some of the busiest growth years. Meanwhile, EY-Parthenon says Australia's private debt AUM is on track to reach A$234 billion by 2025, helped by tighter bank lending to riskier borrowers and strong appetite for higher-yielding fixed income.
Selectivity is not limited to global players. Melbourne based Judo Bank, a specialist lender to small and mid sized businesses, has also become more discerning in deals involving private credit funds, people familiar said. In August, Judo reported about A$445 million of warehouse lending across nine facilities and said it had a strong pipeline of opportunities, while declining to comment on its stance.
If banks keep narrowing who gets financing, private credit funds that relied on warehouses and other bank lines could find liquidity thinner just as higher rates and property stress test portfolios.
For savers and income seekers watching this space, the telltales to track are investor redemption activity, any further curbs from lenders, and how property linked loans are performing. Those are the pressure valves that will shape fund returns and how readily new deals get financed.
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