Pallas Capital to stay with Credit Suisse amid UBS concerns

Pallas Capital is looking to keep its lending deal with Credit Suisse but some warn the future of the debt deal with one of Sydney’s biggest non-bank property lenders may depend on UBS.

Patrick Keenan executive chairman Pallas Capital told investors there was no possibility that Credit Suisse would look to accelerate the repayment of its loans to Pallas Capital under the current deal between the two.

One of Sydney’s biggest private commercial property lenders Pallas Capital is fielding approaches from other lenders amid turmoil engulfing its lender Credit Suisse, which has backed more than $267m in loans.

But the commercial property lender and developer said it was not looking to retreat from its multi-year deal with Credit Suisse and may look to further upsize its facility with the Swiss bank’s Australian arm.

In a letter to investors last week, before UBS’s takeover of its fellow Swiss banking rival Credit Suisse, Pallas Capital chairman Patrick Keenan assured investors of no “possible impact on their investment”.

“We are happy to confirm that whatever happens to Credit Suisse does not affect any of the existing loans in PFT, or any existing investments in the PFT Feeder Fund,” he wrote.

Mr Keenan told investors there was no possibility that Credit Suisse would look to accelerate the repayment of its loans to Pallas Capital under the current deal between the two.

“It is possible at some point that Credit Suisse will decide not to fund any further advances to PFT, in which case PFT may discontinue making new loans and the PFT loan book would be wound down,” he wrote.

“We have been approached by a number of other global financial institutions who have said that they would like to replace Credit Suisse as the Class A Note holder in PFT. We will pursue these conversations if/when Credit Suisse declines to extend its PFT facility.”

Pallas Capital currently holds two facilities with Credit Suisse for $500m and $NZ300m ($278m).

Mr Keenan told The Australian he may look to further extend the Credit Suisse facility, noting Pallas Capital had not responded to any approaches from other lenders.

However, he noted the Credit Suisse Facility was an “unusual one” for the bank to write, given the size of loans Pallas Capital was funding.

“Often you’ll get facilities for various loans to be written but often those loans have an average size of $1-2m. We’ve got the largest loan here for $14m,” he said.

“The facility is likely to get bigger before we can upsize it.”

But SQM Research analyst Louis Christopher said the future of Pallas Capital’s funding link with Credit Suisse may depend on the risk appetite at UBS.

UBS does not have a similar property lending product in the Australian market.

“We need to consider if the Credit Suisse bank is completely consumed, or does it act as a subsidiary here to UBS and continue as normal,” Mr Christopher said.

UBS’s $4.5bn takeover of Credit Suisse comes after the bank racked up billions in losses on risky lending and investments.

Mr Christopher said the Australian property market was facing the added issue of questions around commercial property pricing which may affect any future debt refinancing.

“There are multiple issues with the Australian property market now,” he said.

Mr Christopher said capitalisation rates on property, which had been trading near record lows, had gone up.

“We know that risk premiums should be rising and taking into account when commercial property is valued we know of rental issues and higher vacancies with covid and the slow pace of people returning to work,” he said.

“There should be an additional risk premium factored in on property.”

The Pallas Group, which controls Pallas Capital, has a double exposure to property as it both funds lending to purchase as well as developing buildings in its own right under its sister company Fortis.

Credit Suisse signed on to fund Pallas Capital in November 2021, agreeing to finance loans between $1-10m to acquire development sites.

Pallas Capital has funded 389 loans with the total value of $2.9bn.

Originally published as Pallas Capital to stay with Credit Suisse amid UBS concerns