MA Financial pens $1b deal with Humm financing vehicle

MA Financial and a subsidiary of non-bank lender Humm Group are picking up as much as $1 billion in loans that are secured against thousands of assets such as equipment or vehicles.

The investment bank, formerly known as Moelis Australia, is partnering with Humm-owned Flexicommercial, to acquire the loans through its private credit business. MA will kickstart the effort with an initial $500 million, while Flexicommercial is charged with originating deals for a portfolio containing more than 6000 loans.

Asset-based lending is fast becoming the next frontier for the near $200 billion local private credit space. Fund managers are drawn to smaller-sized securitised financings for areas such as aeroplanes, medical supplies and litigation, areas big banks have fallen out of love with.

“These assets are core to businesses – vehicles, essential equipment for real-world economies, and they are commercial borrowers,” Frank Danieli, MA’s head of credit investments and lending, told The Australian Financial Review.

“We love that thematic where banks were once the efficient funder, and not any more. We can step in and [provide] finance.”

As a funds’ manager, MA’s ability to source these bespoke types of financings is limited without a firm like Flexicommercial, which has an existing book of asset-backed financings. Mr Danieli said MA’s private credit exposure made up more than $4 billion of the firm’s total $9.6 billion in assets, and believed co-lending in areas was “the next logical evolution” for private capital.

Under the terms of the agreement, Flexicommercial will scour the market for new deals, which MA can choose to underwrite. The pool of loans typically comprises small-sized transactions in the $100,000-$200,000 range.

“What we like about this deal is we get to source assets that are otherwise unavailable for our credit funds,” Mr Danieli said. “And we can be a manager of these assets as well.”

Private debt deals have benefited from monetary tightening, and those higher, sometimes double-digit returns have enticed investors into funds that finance assets from real estate to small businesses.

Investors, however, are crying out for private credit managers to better manage their money with improved disclosures of fees, greater transparency on defaulted debt and visibility as to where credit funds park investors’ capital.

Investigations by The Australian Financial Review have revealed instances of overdue loans, hidden fee structures and probes by the Australian Securities and Investments Commission into how funds relay information on underperforming loans.

As the credit markets encounter more stress – corporate loan defaults were up 80 per cent last year in the US, while Australian home loan arrears spiked to 1.5 per cent in 2023 from 0.5 per cent – funds are pressured to diversify investor holdings.

Earlier this week, Pimco’s head of global credit research, Christian Stracke, told the Financial Review that asset-backed loans were “the new phenomenon” for investors due to added security through hard assets such as equipment or aeroplanes.

Mr Danieli said banks’ balance sheets still contained assets that are perhaps not “efficient for them to hold”, meaning there were more sources of private debt that could step in.