Metrics Credit Partners refund ‘in the best interests’ of investors

Metrics Credit Partners will refund all cash received under the capital raising offer.

Banks and financial companies in Australia with exposure to risky corporate bonds were sold off heavily over the past two weeks, amid fears of a rise in bad debts.

Sydney-based shadow bank and corporate lender Metrics Credit Partners has become the second listed corporate debt fund manager in a fortnight to dump a capital raising, refunding investors hundreds of millions, as junk bond markets churn.

It comes after exchange traded funds tracking US high-yield corporate bonds notched up their biggest fall since the global financial crisis in the wake of the 30 per cent nosedive in the oil price over the weekend.

Analysts are warning the plunge in the oil price could unseat firms in the energy sector, which accounts for about a 10th of the US high-yield corporate debt market.

Banks and financial companies in Australia with exposure to risky corporate bonds were sold off heavily over the past two weeks, amid fears of a rise in bad debts.

A non-bank lender with assets under management of more than $5bn, Metrics Credit Partners, had launched a capital raising in January, seeking up to $638m for its listed debt fund MCP Master Income Trust, which invests in a range of high-yield corporate debt bonds and securities.

But after “extreme market volatility” it decided that refunding all cash it had received under the offer would be “in the best interests” of investors.

An earlier statement said the capital raising had drawn in about $344m at $2 a share, which was expected to be settled on Thursday.

“While the trust’s units have generally traded with little correlation to public domestic and international equity and bond markets, they have recently traded below the trust’s net tangible assets,” the company told the ASX on Thursday.

“Metrics expects that once market conditions stabilise, it may seek to raise further capital in order to invest to further diversify the trust.”

Last week, turbulence on financial markets derailed a $750m raising for a junk bond fund, triggering hundreds of millions of dollars in refunds as “extreme market volatility” also pushed Neuberger Berman’s Global Corporate Income Trust to trade at a discount to its net assets.

Fund manager Perpetual on Wednesday for a second time in a fortnight issued a statement to investors, seeking to calm holders in its Credit Income Trust after shares in the listed debt fund had fallen about 20 per cent since late February.

Perpetual’s Credit Income Trust invests in between 50 and 100 fixed income assets, with a “core” group of investment-grade assets, but with the freedom to hold up to 70 per cent high-yield securities or private loans.

Kristy Bradley, a client manager at Perpetual Investment Management, said the trust’s portfolio was “well diversified” with 86 holdings across more than 60 issuers.

“The manager is confident with the credit risk held in the portfolio,” Ms Bradley said.

“The manager has deep experience in the Australian fixed income market and a proven and stable team. The team is well resourced and are highly skilled and experienced in actively managing credit, with an average of 22 years’ experience,” she said.

Investors are growing increasingly nervous that the coronavirus impact will hit the cashflow and credit of businesses in a number of sectors. The size of the corporate debt market with a credit rating a notch above “junk” status, or rated sub-investment grade, has grown close to a record high, and sudden shocks to the economy could put more companies at risk of a downgrade.

Some large financial companies have to hold a certain share of investment-grade securities in their portfolios, and more downgrades could spark a sell-off in bonds.

The prices of bonds issued by oil and gas producers laden with debt have dropped sharply over the past month. A lower oil price would put further pressure on cashflows in the energy sector, and risks squeezing risky borrowers already hit by a fall in demand for oil caused by the coronavirus disruption.

The Perpetual trust had 41 per cent of its assets held in junk, or sub-investment grade, holdings at the end of February. That was down from 44 per cent in January.

Ms Bradley said 29 per cent of the trust was held in bonds and notes issued by investment grade issuers such as Aurizon, BlueScope, Coles and junk issuers such as Barminco, Zenith Pacific and Omni Bridgeway.

She said the portfolio had no exposure to ASX-listed bank hybrid notes, but did hold a 14 per cent weighting to debt securities issued by banks such as National Australia Bank, Westpac, Bendigo and Adelaide Bank and Bank of Queensland.

Financial Issues, such as Insurance Australia Group, Suncorp and global banks, Barclays, Goldman Sachs and BNP Paribas made up 17 per cent of the portfolio, while property trusts accounted for 5 per cent.

Asset-backed securities, such as residential mortgage bonds, made up 13 per cent of the trust.