Specialist credit fund manager, Metrics Credit Partners, which launched a listed investment trust on the Australian Securities Exchange last October, has gone back to the market to raise more capital.
MCP raised $516 million when it listed last year and now it is seeking $303 million through an entitlement offer. Existing unitholders are being offered one new unit for each 1.7 units they hold.
In addition, MCP will issue up to $77 million of new capital.
MCP has been in operation since 2013, when it launched a wholesale fund, the Metrics Credit Partners Diversified Australian Senior Loan Fund. It has launched two other wholesale funds since then and manages $2.7 billion of assets.
It provides corporate debt to both public and private companies, project finance, property related loans and acquisition finance. All borrowers are Australian businesses.
Loans are a mix of secured and unsecured, senior and subordinated, investment grade and sub-investment grade (75 per cent are investment grade). The majority of loans are to companies rated BBB and BB.
The listed trust, MCP Master Income Fund, is a feeder fund, investing in the established wholesale funds and has exposure to more than 70 loans.
When the trust was launched it set a target return of the Reserve Bank cash rate (currently 1.5 per cent) plus a margin of 3.25 per cent, net of fees, with distributions paid monthly.
MCP managing partner Andrew Lockhart says the trust is meeting its income target
Lockhart says MCP is raising more capital because it sees a strong deal pipeline and it wants to participate in that.
An advantage for investors is that the trust’s management fees will fall if it raises more capital. At the moment investors pay 86 basis points. Lockhart says that if MCP reaches its target the management fee will drop to 55 bps.
MCP has made more than 100 loans since 2013, worth a total of around $4 billion.
Lockhart says no loan in MCP’s portfolio has gone into arrears.
“There are a number of ways of getting into the corporate debt market but we argue a managed portfolio is the best approach. We manage our assets on a daily basis,” he says.
Lockhart is confident the fund will maintain its target income return. While investment grade credit spreads have tightened (meaning a lower margin for the fund), this has been offset by higher margins in the property finance market, where banks have reduced their exposure.
The offer price, at $2 per unit, represents a 3.9 per cent discount to the 30-day volume weighted average price of trust units up to the period ending February 23.