Private credit was very much in vogue in the last phase of the rates cycle as ultra-low yield led investors into this emerging sector in search of positive income returns. Higher rates have changed the equation, but sector participants say revised approaches to assessing private credit opportunities do not diminish its appeal – especially while borrowers continue to seek this type of funding.

As a private debt investor, Metrics Credit Partners aims to bring leverage to bear as a lender and adviser that is not available in the mainstream syndicated loan market. The cohort of borrowers in the private debt sector is also fertile ground for sustainable finance, as the market has so far typically focused only on the largest corporate entities.

Australia’s sustainability-linked loan market has experienced rapid growth and lenders say a wave of vanilla debt issued in 2021 could switch to sustainability-linked loan format this year if borrowers meet requirements. The next phase is a sign of the changing business culture, in which issuers, investors and intermediaries are embracing innovation and seeking to apply green financing principles as widely as possible.

Australia’s private-debt market and the investors that specialise in it are not new phenomena. What is new is a headline cash rate at close to zero and the withdrawal of supply from the biggest historical source of local credit issuance – the major banks. Specialist investors say their sector is attracting more interest and inflows on the back of this changed environment.

Green, social and sustainability (GSS) bonds opened the door to a more active sustainable debt market in Australia. But they are only the first step. In a roundtable hosted by ANZ and KangaNews in September, credit-market participants looked at the full scope of potential growth in the sustainable-debt universe, including the role of new products in the loan and bond space, and the end goals of this type of financing.