Private credit Investments that provide confidence
Private credit investments that give you certainty.
We work with multi-generational family offices that want deal control, security for their capital and a premium return. If our private credit investments are good enough for family offices, then doesn't your family’s wealth deserve the same?
That is why we offer direct lending private credit opportunities of various deal sizes, from $200k to $10M, with various product types that offer returns ranging from 8% to 50% p.a.
Whether you want to invest in a low LVR secure first mortgage loan, or a high return second mortgage loan, we will provide you with the mechanisms to derisk investments, that let you sleep easy at night.
private debt Investments with high yields
How to acheive alpha in private credit?
An alpha return is when an investor is can achieve a premium return without needing to take on addittional risk (when compard to a similar investment type). We achieve alpha in five ways ways.
Speed to market: Borrowers are willing to pay a premium for urgent funds.
Unique products: We are the only ones to offer heritage plate loans in Australia and specialised underwriting.
Underwriting risk :Where we take a secondary debt position, we also ensure the first mortgage can be underwritten. This equates to second mortgage returns, with first mortgage risk.
Micro deals: Deals sub $200k, command a premium return for the inconvience to investors.
Special relationships: We have deep relationships with our advisory clients. Deep relationships, equates to reduced risk and higher returns.
You can read our private credit strategies for alpha here.
Private debt Investments that are unique
Private debt direct lending investments
Have the flexibility to choose the deals, deal size, security types, risk levels and returns you want. All of our direct lending deals ensure you're in control. All loan loan documents are done in your entitys's name, to make you the bank! Our exclusive deals are on an invite only basis. Below is an overview of some of the opportunities we offer.
- First mortgage private debt investment, net returns of 8% to 14% p.a.
- Second mortgage private debt investment, net returns of 16% to 24% p.a.
- Heritage plate private debt investment, net ret turns of 16% to 20% p.a.
- Lender warehouse facilities, net returns of 9% to 15% p.a.
- Business warehouse facilities , net returns of 12% to 30% p.a.
- Special debt situations working capital, net returns of 30% to 60% p.a.
If you've ever wanted to be directly in control of your investment destiny, contact us today.
Private credit Investments
Should I invest in a private credit fund or direct lending?
Do you want to be a passive investor or an active investor in private credit, maybe both? Investing in a private credit fund will provide you with an investment option, that provides a shared security pool, capital spread across multiple deals and quarterly distributions, with decisions made by fund managers we trust. We make sure the fund managers we work with are directly invested themselves, work with family offices and ahdere to strict IM terms.
If you'd like to invest in a fund, we work with fund managers that have construction funds, first mortgage funds and second mortgage funds.
Alternatively If you wish to be an active direct lender your self and become the bank, we can originate and structure deals for you. Enjoy the benefits of higher net returns (30% higher than a fund in a similar asset class), direct mortgage security and deal control.
Private credit with high yields
How does the direct lending model work?
Our private credit investments are made for wholesale investors who want to be the direct funder without syndication. What does our model entail?
- Deal origination: We originate deals to match individual investor preferences.
- Initial diligence: We conduct initial DD and provide recommended deals terms. After a letter of offer is executed by the borrower, formal DD takes place to your satisfaction.
- Formal DD & Old school values: We help guide you regarding valuations and other critical DD items.
- You have control and legal claim: All loan and mortgage documents are done under your lending entity's name.
- We don't touch your money: All funds are handled by you or your lawyers.
- Loan admin management: We work with you to help with loan management admin.
Private credit borrower profile
Why do private debt investments exist?
Private debt investments exist to service the liquidity requirements of private businesses, that cannot be fully serviced by traditional banking! Typical reasons include.
- They do not meet bank lending criteria. Tax debts, late interest payment, low credit score or because they don't have 2 year financials.
- They are bankable but the bank can't meet their requirements. The bank may not be able to provide the capital in time, or may not fund a particular transaction type.
- Bank funding requires serviceability, which requires tax to be paid. Businesses that need short to medium term capital, may not wish to crystallise profits and pay excess tax.
- They don't want the headache of a bank.
- Specialised product. The borrower requires a specialised facility a bank doesn't offer.
Fixed Debt Investments, That Give you Certainty
RSC private credit investments and borrower risk profile.
At Royce Stone Capital we structure and originate two types of deals for our investors, based on what they want!
RSC low doc loan applications.
- Borrowers have good credit scores and are bankable.
- Meet second-tier lending criteria.
To attract these borrowers, we offer second tier rates with interest only terms for 1 to 3 years and an easier application process.
Full private loan applications.
- Borrower does not meet bank or second tier criteria.
- Borrower does not wish to deal with the banks.
To attract these borrowers, we offer an expedited loan processes and unique products for special situations.
A full break down of deal returns is provided below or start working with us today!
Fixed income investments with peace of mind
First mortgage private credit investments
We have two types of first mortgage products, either a low doc application or a private loan. Across both types a first mortgage is provided to the investor / funder. Typical terms include.
Property LVRs
- Residential property up to 80% LVR in metro cities.
- Commercial property up to 75% LVR in metro cities.
Low doc applications.
- Borrower meets second tier lending requirements.
- 1 year to 3 years.
- Net returns of 8% to 9.5% per annum.
- Paid monthly.
Private loan applications.
- 3 months to 1 year
- Net returns of 8.5% to 14% per annum.
- Paid monthly or paid in advance
High return private debt investments
Second mortgage backed private debt investments
Want higher returns? A second mortgage private loan, is the way to get you there with property as security. Our second mortgages only sit behind a bank or a second tier lender.
Typical terms
- Fees and interest paid in advance 90% of the time.
- Deal sizes of $200k to $2M
- 3 month to 12 month investments.
- Net returns of 15% to 26% p.a.
- Security registered mortgage against an asset
- Maximum first mortgage and second mortgage debt LVR of 80% combined
Work with us today, to learn how to properly do a second mortgage loan and earn a higher return!
Private credit, direct lender warehouse facilities
Private credit investments, lender warehouse facilities
Provide the capital that private lenders need to grow their loan books by lending them the capital they need via investment into a private credit warehouse facility.
Deal sizes of $5M minimum, or these facilities can be syndicated amongst investors.
The advantage of these facilities is you are providing funds to a private lender that then uses your funds to do micro loans, with the lender managing the loans and you having the loan book as security!
Gain the benefit of reduced concentration risk, passive investment and a higher net return. Typical scenarios involve providing funds to invoice financiers, or other lenders with specialised debt books.
Typical deal terms
- Deal concentration of no more than 5% per any one loan.
- Net returns of 12% to 15% p.a. to the investor.
- Security registered against the lender loan book or a carved out asset pool.
- 2-to-3-year facilities.
Private credit, direct lender warehouse facilities
Private credit investments, warehouse facilities for B2B
Provide the capital that businesses need to grow their own loan book, so they can sell more of their products / services. In this scenario, we provide a warehouse facility to a business, that uses i
Deal sizes of $2M minimum, or these facilities can be syndicated amongst investors.
The advantage of these facilities is you are providing funds to a business, that does micro loans with a number of individual guarantors, so concentration risk is spread. The business also has the right to buy the equipment in the event of default by a borrower, so the warehouse facility gets its principal funds back, helping to further mitigate risk.
Typical deal terms
- Deal concentration of no more than 5% per any one loan.
- Net returns of 12% to 30% p.a. to the investor.
- Security registered agaisnt the loan book and business borrower GSA
- 2-to-3-year facilities.
Private debt alternative assets
Private debt investments, heritage plate lending
We were the first in Australia to do lending against heritage plates. Heritage plates are multibillion dollar asset class in Australia, and in many respects, they are one of favourite assets to lend against. Firstly, because we transfer the title to your name for the course of the loan. So ownership is essentially transferred, as a mortgage can't be placed on plates, second because returns are in the double digits for conservative LVRs.
Typical deal terms
- 50% to 65% of plate value
- Net yields from 18% to 22% p.a.
- 6 month to 12-month terms
- Minimum Deal Size of $200k
Private credit special situations
Private credit investments, special asset carve out
We provide credit in special circumstances such as business restructures, inventory purchases and special contract management situations. Because we work closely with a select number of business clients that we have known for years and have monitored. We can mitigate the risk for select situations that others would perceive as high risk. In essence earning us a very lucrative return, but without the risk that typically comes with those situations.
Typical deal terms
- GSA against a business, director guarantees and special asset carve out.
- Net yields from 30% to 60% p.a.
- 3 month to 6 month term.
- Minimum Deal Size of $100k to $1M.
How to manage the risk of private debt investments
Getting rewarded for inconvenience and the risks of direct lending
Direct lending that is mortgage backed are one of the oldest forms of private debt investments. It is for this reason family offices so often invest in them, because they have security and are handsomely rewarded for any inconvenience. Below are some of the key risk you need to be aware of.
- The borrower does not repay the loan or interest. You have the ability to take possession of the asset and sell it. This typically takes 3 to 5 months and with legal costs of $30k to $50k. During this time, penalty interest is charged, and your legal costs are reimbursed from the sale.
- Property valuations. Property prices can rise or fall, and as such your LVR can increase or decrease as prices move. This is why we will only go up to 80% LVR on as is valuations, so there is a sufficient buffer for property price movements and equity for penalty interest etc. Additionally, your legal contracts should stipulate that the borrower must maintain the LVR during the corase of the loan and inject further equity if required to maintain the LVR.
- Second mortgage risk. In the event of default, the first mortgage lender (the bank) and their penalties have priority, before the interests of a second mortgage holder. We ensure your contract paperwork has the ability to identify any issues before a first mortgage lender takes possession, and allows you to replace the first mortgage lender.
Private credit funds
Private credit funds Vs RSC direct lending opportunities.
Direct lending is not for everyone and is reserved for those who have the means to fully fund deals themselves. In return they are able to secure higher returns than a private credit fund.
Advantages of direct lending vs a private credit fund.
- Good for larger investors who have $200k to $20M.
- Good for investors who want deal control (active management).
- Good for investors who want direct security
- Good for investors who want higher net returns.
Disadvantages of direct lending vs a private credit fund.
- Isn't viable for smaller investors, who don't have the capital to take a whole deal.
- Isn't viable for passive investors who don't want to be actively engaged in deals.
What are private credit investments?
Private credit investments involves investors providing funds to private businesses or in some instances to publicly traded businesses, where the debt itself (security) can’t be publicly traded. This can occur directly between investors and private businesses, or via investors investing into their money into a managed fund with an investment manager that then loans these funds out.
By their nature private credit investments are generally speaking illiquid, because they can't be easily transferred from one party to another, like publicly traded corporate debt or government bonds.
There are many subcategories of private debt investments and there are many financial products. Private debt investments can have a range of different types of security, from mortgage backed property, loan book backed, corporate guarantees and alternative assets. Picking the right type of private debt investments that is right for you, is critical to your investment goals.
At Royce Stone Capital we specialise in direct lending private credit investments that are mortgaged backed.
What are the risks of private credit investments?
As with all investments, there are risk and private credit investments are not immune but they are safer than many equity investments. Broadly speaking the below are the main risk involved with private debt and how we mitigate for these at RSC.
Investment manager risk
If you are investing your money into a private debt fund, then the performance of that fund is subject to the decisions made by the investment manager. Just because the fund says it will only lend to a 70% LVR of a property, does not mean the actual loan is 70% of the property value. As some investment managers can vary the way in which a property is valued, to make the valuation fit the requirements of the fund mandate!
Another issue with private debt funds and private credit funds, is investment managers may use their fund as security to take a loan. In other words they may provide the fund itself and the investors capital as security for a loan that the fund is taking to leverage its loan book. Once again at RSC because we don't run a fund, this is not an issue you will ever have to face!
At RSC, as an investor funder in our direct lending products, you make the decision! All information is presented to you, with our view, but you ultimately are the decision maker, and you can determine the level of DD you want done to your satisfaction!
Counter party risk
One of key risk with private debt investments, is the risk of that the borrower, the contractually obligated party does not fulfill their obligations and commitments under the loan agreement. This can include not repaying the loan on time, not paying interest on time, taking out other loan facilities beyond what is permitted or altering the underlying physical security.
With RSC direct lending investments borrowers as part of their signed legal obligations have a number legal obligations that they are contractually bound to. To ensure these borrowers honour these agreements borrowers must provide security for the transactions they enter into.
In most cases it is a first or second mortgage over property, which the lender can then enforce against and have sold, with additionally penalties going to the lender. Secondly borrowers must provide a personal guarantee. This means any assets held in their personal name can be claimed against, in the event of non-payment. Directors also leave themselves open to being made bankrupt and being prevented from being directors in future, if they are unable to repay all funds owed to the lender.
What this means, is that RSC investor funders, have a number points of recourse and security, by which to enforce their rights in the events borrowers default against terms. Giving our investor funders confidence, to move ahead with transactions, whilst ensuring their principal has security.
Valuation risk, LVR, property value over time:
One of the key risks with private debt investments, in specific mortgage backed lending, is the value of the underlying property asset that is being provided as security!
Valuation
When it comes to property security, a number of things need to be considered. What is the quality of the valuer? Is the valuation based on the as is current value? What would the property be worth in a fire sale scenario? is the valuation based on the site with permit values included, and if so, is that project still feasible, as the feasibility will determine the inherit permit value.
At RSC we do our own internal valuations and speak to a number of parties to determine the fire sale value of an asset. If we are in doubt or unsure, or at the request of our funders if neither us nor them can determine the value of the asset, we will engage a third party to do a valuation.
LVR and property liquidity
The type of property will also determine the loan LVR. A loan against a residential property in a major city can afford a 80% LVR, but a residential property in a regional town centre may only attract a 60% LVR. Similarly, a commercial property may attract a 75% LVR in a metropolitan city, but a piece of land that is yet to be rezoned may only attract a 60% LVR.
The LVR has several factors that come into consideration, the main one being the liquidity of an asset! The higher its liquidity, the higher an LVR can go. The lower the liquidity of an asset, the lower the LVR must be to compensate the investor / funder for any financial inconvenience caused, so the funder can be reimbursed.
Liquidity risk of private debt investments
By their nature private debt investments are not as liquid as publicly traded corporate bonds or government debt. This means that once an investor enters a private debt transaction, it is harder for them to sell the investment to another party. Because of this inconvenience investors are rewarded with an illiquidity premium.
In the case of mortgage-backed direct lending that we do at RSC, liquidity for investors comes via one of four ways.
- The borrower refinances their debt with another party, on maturity.
- The borrower repays the loan on maturity.
- The asset is sold by the investor / funder, due to the borrower being in default.
- The investor / funder can sell the loan contract to another lender (speak to us about how this is done.)
Who manages my money with a RSC private credit investment?
The role of RSC is to originate loans and to help with the loan management process. From start to finish, all funds are managed by you the investor / funder. We do not manage your money!
From when the loan is established, funds are transferred from your account to your solicitors account, who ensures all documentation is in order. Once the loan docs are signed to the satisfaction of your lawyer, and the mortgage registered. Funds are then transferred from your lawyer’s trust account to the borrowers lawyer’s trust account.
In the instance where interest is paid monthly. It is either paid directly to your nominated bank account or to your solicitor’s trust account.
RSC can help with loan management administration and certain communications with the borrower. But all decisions are ultimately made by you.
