Private Debt – Dominion Income Trust (ASX: DN1) and Metrics Master Income Trust (ASX: MXT)
Private debt/private credit, is there a difference? Can you please provide an opinion on the risk/reward for MXT and DN1. Thank you.
The Latest Q&A
Answer
Hi Ian,
Theres no real difference between “private debt” and “private credit” they are essentially the same thing. Private credit/debt = non-bank lending replacing traditional bank financing, and a major growth area in financial markets.
- Private Debt is an older term, used more commonly in Europe.
- Private Credit is a newer, more popular term (especially in the US).
We discussed Private Credit, and specifically DN1 earlier this month Here.
Private credit in the US is getting a lot of negative press due to large redemptions and gating of funds. Gating means the manager does not have to accept all redemptions in one hit and can’t stagger them over time. The concern in the US is private credit has largely funded software companies where earnings are now less predictable. In Australia, private credit is not as heavily exposed to software, with more exposure to property and other sectors. Both DN1 and MXT are trading at discounts to the value of their underlying assets, which we view as attractive. DN1 more so, as it has a set maturity date whereby investors get the value of fund paid back. This means DN1 is less likely to retain a discount to NTA ongoing, whereas MXT is open ended, and discounts can persist. Between the two, we prefer DN1 for this reason, and other LIT’s that have a prescribed maturity date, which are now typically trading above 8% yield to first call. (MXT is also trading at above 8% yield).
