Agreed, the loans are secured by the PDLs. But any prudent...

Agreed, the loans are secured by the PDLs. But any prudent lender (Westpac and CBA would qualify) would not allow you to borrow 100% of asset value. They'd cap it at something closer to what they'd get back if they had to sell the asset during a fire sale. There are no announcements that show me such a covenant, so it's only prudent to assume this in lieu of other information.

If we assume a 70% LVR, then the ~$210m of bank borrowings would support ~$300m of PDLs. At the moment, they're valued at $400m. Only a 25% markdown of assets required to trigger this, assuming a 70% LVR. It could be lower, we don't know. If anyone has confirmation from management on this, I'm interested to know the terms of the loan.

Factor in also that PDLs are extremely hard to value. You're buying bad debt, for a fraction of the face value - but how much can you actually collect? There are plenty of examples of debt collectors assuming their PDLs are worth more than they thought... PNC being the most recent.

Unless you know the specifics of the agreement between the syndicate (Westpac and CBA) and just how prudent management are when valuing PDLs, then there are ways the debt could become a problem.


As for the Balbec funds - I would not assume these funds could be used to pay down bank loans. Management have introduced needless complexity within that transaction with minimal transparency, so we don't really know.