B. MOSES ASSET MANAGEMENT
BMAM Portica Private Debt Fund - PPD Fund 

A High Yield Private Credit Fund - Target Net Return 7.5%, 12% & 15% Income Distribution Paid Semi-Annually

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What is Private Credit? 

Private credit − also referred to as private debt and private lending − is an important alternative form of finance for private capital investment and for small to medium-sized businesses. It is not publicly traded and includes any credit held by, or extended to, privately held companies taking the form of loans, bonds, notes, or private securitisation issues. Private credit mostly involves non-bank institutions such as specialised credit managers, insurance and asset managers, superannuation funds, and Family Offices making loans to private companies or buying those loans on the secondary market.

Private credit investments involve providing loans to private companies that are not large enough to access public debt markets. Private credit funds generally make these investments and can include direct lending, mezzanine debt, distressed debt, and other credit strategies.

Private credit funds focus on SMEs that lack access to public debt markets. However, with the growth of private credit and reduced corporate lending by banks globally, even large private equity-owned companies are increasingly turning to private credit providers for their debt funding needs instead of relying on public markets.

Examples of Private Credit Investments:

  1. Direct Lending: Loans made directly to small and medium-sized enterprises (SMEs) for various purposes such as expansion, acquisitions, or working capital.
  2. Mezzanine Debt: Subordinated debt that sits between senior debt and equity in a company’s capital structure, often used to finance growth or acquisitions.
  3. Distressed Debt: Investments in companies that are in financial distress or undergoing restructuring.
  4. Real Estate Loans: Financing for property acquisitions, development, or refinancing.

Bank lending remains a traditional source of debt, despite the decrease in activity following the Global Financial Crisis (GFC) in 2008 and the tightening of various banking regulations. Traditional lenders cut back financing following the GFC, which created space in the market for investors such as private debt fund managers to provide alternative sources of lending. Debt strategies were previously a sub-category of private equity investing, becoming an established asset class in its own right post-crisis. 

The growth of global private credit has been driven by several factors. Over the past decade, the market has expanded more than threefold to surpass $1 trillion, with North America and Europe accounting for 97% of opportunities. This growth is expected to continue, spurred by increased regulatory oversight and restrictions on banks, particularly following the failures of SVB and Credit Suisse.

Before the Global Financial Crisis (GFC), banks dominated credit provision to companies, primarily on a hold-to-maturity basis. However, post-GFC, regulatory bodies imposed stricter capital and liquidity requirements on banks. Consequently, loans to middle-market companies and certain non-bank lenders became less appealing.

The resulting withdrawal of banks from this market, coupled with significant consolidation in the banking sector in the USA and Europe, created a notable liquidity gap. Private credit managers have stepped in to fill this void, offering investments with high risk-adjusted returns, floating-rate yields, diversification, and capital stability.

  1. Credit Risk: Private credit investments are subject to the risk of default by the borrower, leading to potential loss of principal and interest payments.
  2. Liquidity Risk: Private credit investments can be illiquid, meaning selling them quickly at fair market value may be difficult. This lack of liquidity can make it challenging to access funds when needed.
  3. Interest Rate Risk: Changes in interest rates can impact the value of private credit investments. Rising interest rates may decrease the value of existing fixed-rate investments, while falling rates may reduce income from floating-rate investments.
  4. Reinvestment Risk: In a declining interest rate environment, income from maturing investments may need to be reinvested at lower rates, potentially reducing overall portfolio returns. 
  5. Market Risk: Private credit investments may be subject to market fluctuations and economic conditions, which can affect their value.

Investments in debt backed by Australian registered mortgages and/or corporate guarantees provide investors with a level of security due to the underlying collateral assets and guarantees offered by Borrowers to be eligible to obtain financing from the Fund. 

The security assets offered as collateral are utilised to achieve capital protection, and guaranteed investment returns are possible as the interest cost is capitalised as part of the borrowing expense. Here’s an explanation of why these investments is considered secured and how capital protection and investment return can be guaranteed:

Secured Investments:

  • Debt investments backed by Australian mortgages are secured by registered mortgages over real property in Australia. This means that in the event of default by the borrower, the Lender has a legal claim to the property pledged as collateral. Similarly, investments backed by corporate guarantees provide security in the form of a promise from a corporate entity to fulfill the obligations of the borrower.
  • These secured assets provide a tangible source of value that can be liquidated to recoup the invested capital in case of default.
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Capital Protection:

  • By investing in secured debt assets, the Fund ensures that investors’ capital is protected to a certain extent. In the event of borrower default, the Lender can seize and sell the underlying collateral (mortgaged properties) or enforce the corporate guarantees to recover the outstanding debt.
  • The use of registered mortgages and corporate guarantees provides the Lender with legal recourse to enforce its rights and protect investors’ capital.
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Secured Income Return:

  • While no investment is completely risk-free, investing in secured debt assets with collateral and guarantees can provide a degree of certainty regarding investment returns.
  • The Lender prioritises repaying principal and interest to investors before considering other distributions, helping ensure a predictable stream of returns for investors.
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Understanding Private Credit 

A secured private credit deal involves a transaction where a private lender extends credit to a borrower, typically outside traditional banking channels. This type of arrangement is common in various sectors, including real estate, corporate finance, and infrastructure projects. Private debt deals can take various forms, such as loans, bonds, or structured finance products.

The structure of such deals entails borrowers providing security assets or collateral, with the cost of finance and interest charges determined by whether the credit is offered on a first or second-mortgage basis. The terms “first mortgage” and “second mortgage” denote the priority of the loans in the event of default or foreclosure.

Understanding Private Credit – Capital Structure Vs Risk Level

The capital structure of a company or borrower encompasses the various types of financing utilised to support operations and investments. Whether debt or equity, each component is vital for sustaining financial stability and facilitating growth.

Assets provided as security within the capital structure are essential for ensuring repayment and coupon distributions to investors. These assets serve as collateral and income streams, bolstering investment security and mitigating risk for lenders and investors.

Drivers of Returns Across Different Private Credit Sectors

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About the Fund – PPD Fund

The Portica Private Debt (PPD) Fund is an Australian domiciled fund.

Wholesale Investors subscribe to Loan Notes within a Series issued by the Fund at the time of their investment. These Loan Notes’ proceeds are then invested by the Fund into debt portfolios aligned with its investment strategy and the criteria of the relevant Series.

The Fund is committed to preserving capital and providing attractive, regular returns to debt investors. The Fund primarily invests in secured debt, generally backed by registered mortgages over real property in Australia and corporate guarantees. Additionally, the Fund considers investments in listed and unlisted debt instruments and securities and will seek to provide additional liquidity and returns through the Incidental Strategy.

The investment returns are generated from fixed and floating rate interest payments from its Underlying Loans made through the relevant Series SPVs and Manager for a Series, as well as deployment of funds under the Incidental Strategy before funds are invested in Underlying Loans.

To provide stable income stream and capital protection for Investors through predominantly commercial loans backed by tangible real estate or corporate guarantees and listed and unlisted debt instruments and securities.

The Fund’s portfolio comprises a variety of private debt investments to Australian-based SMEs and debt instruments and securities issued by listed and unlisted private companies. The assets are well-diversified across industries and sectors to manage risk effectively.

Secure debt investments are carefully selected with a strict credit policy in place. Additionally, the Fund maintains a robust portfolio monitoring process to adhere to risk parameters. PS and the IM conduct thorough credit analysis and due diligence on potential Borrowers to assess their creditworthiness and repayment capability.

There are times when the Fund will not be able to deploy funds it holds into the underlying investment strategy due to delays in settlement of the Underlying Loans, shortages in the pipeline of projects, changes in the credit market and the housing market, or insufficient time to invest due to upcoming maturity of the relevant Loan Notes.

In such circumstances, the IM will deploy the Fund assets into an Incidental Strategy, which will allow the Fund to continue to maintain returns to its Investors. This strategy encompasses several elements and aligns with the Fund’s goal of pursuing income and managing risk effectively for the benefit of its investors:

  • Investing in Debt Instruments and Debt Securities
  • Short-Term Commercial Loans
  • Interest Rate Swaps

The investment period is three (3) years with an Investment Manager right to extend the period by another two (2) years. The Fund does not offer any redemptions prior to maturity.

The minimum initial investment in Loan Notes issued by the Fund is $500,000 or $50,000 and requires a Wholesale Investor Certificate.

At our discretion, we may accept an initial investment amount lower than $500,000 or $50,000 where subsequent additional investments ensure the minimum balance is equal to or greater than $50,000 in the Face Value of a Series of Loan Notes within 90 days on the initial investment.

Subsequent additional investments require a minimum amount of $10,000. We reserve the right to lower the minimum initial investment at our discretion.

Indirect investors should refer to their investor platform operator’s offer document for information on minimum initial and additional investment amounts.

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Target Net Return 

Target returns (indicative yields) for the relevant Series are as follows:

Loan Notes

Terms

Security

Indicative Yield

Description

Series A

Floating Rate

1st Mortgage

7.5% to 9.5%

Floating rate notes

Series B

Fixed Rate – 3-year lockup+2-year extension determined by BMAM

1st Mortgage

7.5% to 9.5%

Fixed term of 3-year lockup then an extension of up to 2 years determined by BMAM.

Series C

Fixed Rate – 3-year lockup+2-year extension determined by BMAM

2nd Mortgage

12.0% to 14.0%

Fixed term of 3-year lockup then an extension of up to 2 years determined by BMAM

Series D

Fixed & Floating Rate3-year lockup+2-year extension determined by BMAM

Unsecured – Loans

(No credit Enhancement)

15.0% to 17.0%

Fixed term of 3-year lockup then an extension of up to 2 years determined by BMAM

Target returns are before base Management Fees and tax (if applicable). This is only a target and may not be achieved.

About the Fund – PPD Fund

The Portica Private Debt (PPD) Fund is an Australian domiciled fund.

Wholesale Investors subscribe to Loan Notes within a Series issued by the Fund at the time of their investment. These Loan Notes’ proceeds are then invested by the Fund into debt portfolios aligned with its investment strategy and the criteria of the relevant Series.

The Fund is committed to preserving capital and providing attractive, regular returns to debt investors. The Fund primarily invests in secured debt, generally backed by registered mortgages over real property in Australia and corporate guarantees. Additionally, the Fund considers investments in listed and unlisted debt instruments and securities and will seek to provide additional liquidity and returns through the Incidental Strategy.

The investment returns are generated from fixed and floating rate interest payments from its Underlying Loans made through the relevant Series SPVs and Manager for a Series, as well as deployment of funds under the Incidental Strategy before funds are invested in Underlying Loans.

To provide stable income stream and capital protection for Investors through predominantly commercial loans backed by tangible real estate or corporate guarantees and listed and unlisted debt instruments and securities.

The Fund’s portfolio comprises a variety of private debt investments to Australian-based SMEs and debt instruments and securities issued by listed and unlisted private companies. The assets are well-diversified across industries and sectors to manage risk effectively.

Secure debt investments are carefully selected with a strict credit policy in place. Additionally, the Fund maintains a robust portfolio monitoring process to adhere to risk parameters. PS and the IM conduct thorough credit analysis and due diligence on potential Borrowers to assess their creditworthiness and repayment capability.

Loan Notes

Security

Indicative Yield

Series A

1st Mortgage

7.5% to 9.5%

Series B

1st Mortgage

7.5% to 9.5%

Series C

2nd Mortgage

12.0% to 14.0%

Series D

Unsecured – Loans

(No credit Enhancement)

15.0% to 17.0%

The net distribution return starts from 7.5%, 12% and 15% per annum (this rate is dependent on the particular Series and Sub- Fund and disclosed in the Fund’s Information Memorandum and the relevant SIM).

The frequency of distribution is semi-annually deposits into your nominated bank account.

The investment period is three (3) years with an Investment Manager right to extend the period by another two (2) years. The Fund does not offer any redemptions prior to maturity.

The minimum initial investment in Loan Notes issued by the Fund is $500,000 or $50,000 and requires a Wholesale Investor Certificate.

At our discretion, we may accept an initial investment amount lower than $500,000 or $50,000 where subsequent additional investments ensure the minimum balance is equal to or greater than $50,000 in the Face Value of a Series of Loan Notes within 90 days on the initial investment.

Subsequent additional investments require a minimum amount of $10,000. We reserve the right to lower the minimum initial investment at its discretion.

Indirect investors should refer to their investor platform operator’s offer document for information on minimum initial and additional investment amounts.

Private credit investments involve providing loans to private companies that are not large enough to access public debt markets. Private credit funds generally make these investments and can include direct lending, mezzanine debt, distressed debt, and other credit strategies.

Private credit funds focus on SMEs that lack access to public debt markets. However, with the growth of private credit and reduced corporate lending by banks globally, even large private equity-owned companies are increasingly turning to private credit providers for their debt funding needs instead of relying on public markets.

Examples of Private Credit Investments:

  1. Direct Lending: Loans made directly to small and medium-sized enterprises (SMEs) for various purposes such as expansion, acquisitions, or working capital.
  2. Mezzanine Debt: Subordinated debt that sits between senior debt and equity in a company’s capital structure, often used to finance growth or acquisitions.
  3. Distressed Debt: Investments in companies that are in financial distress or undergoing restructuring.
  4. Real Estate Loans: Financing for property acquisitions, development, or refinancing.