Bathla collapse rattles private credit

Property developer Bathla Group went into voluntary administration yesterday, raising fears that investors will pull back from private credit funds exposed to the sector.

In response, MA Financial has introduced a temporary monthly redemption limit for the MA Secured Loan Series as a proactive measure in response to the potential for increased redemption activity. MA Financial has no exposure to the Bathla Group.

Financial Standard understands the temporary redemption limit does not impact the $15.5 billion private credit fund manager's non-real estate credit funds, including the MA Priority Income Fund.

Last week, Centuria Bass temporarily paused redemptions and applications to two of its private credit funds, the Centuria Bass Credit Fund and the Bass Property Credit Fund, over increased redemption requests driven by concerns around Bathla Group. It anticipates that the freeze on redemptions will remain in place for between two to six months.

"The temporary arrangements reflect the broader market, including uncertainty following proposed tax changes in the Federal Budget and recent publicity concerning other, unrelated private credit managers," MA Financial Group joint chief executive Chris Wyke said.

"These factors have the potential to influence investor sentiment and redemption activity but do not reflect a change in the performance of the fund's underlying assets, which has been providing strong returns to unitholders. The fund has no exposure to Bathla Group."

360 Capital's ASX-listed Mortgage REIT was put on a trading halt yesterday on news of Bathla entering voluntary administration.

It has two loans to the group totally $18.3 million comprising first mortgages, along with exposure of $13.3 million in two loans, secured by 137 individually titled apartments and townhouses.

360 Capital will continue to make monthly distributions and expects full recovery of the outstanding principal, interest and penalty interest.

"The trust is in a strong financial position, with all remaining loans not associated with this borrower in full compliance with their loan terms and covenants," 360 Capital said.

"Under the responsible entity's management, the trust has never held any borrowings or back leverage, with all loans comprising registered mortgages across 168 individual titles in its portfolio. The trust has no corporate loans or related party loans."

Bathla managing director Bhart Bhushan described the current market environment as the "perfect storm" of circumstance, including a significant softening in sales, impacts from the changes made in the Federal Government's May Budget and falling confidence in key markets.

"This has coincided with significant increases in construction costs which have been absorbed by the Group. These changes in market conditions have had flow-on effects to lending markets, putting further pressure on the business," Bathla Group said.

Centuria Bass also commented post the voluntary administration noting its credit funds have funded six separate assets for Bathla.

"Two of the Bathla loan facilities relate to construction, both projects are close to completion," Centuria Bass said.

"Centuria Bass Credit confirms it is already paying subcontractors directly in relation to these projects, within the limits of the existing loan facilities. Its intention is to progress these projects to title issuance, allowing presales to occur. The remaining facilities relate to residual stock loans and land loans."

Centuria Bass added following the voluntary administration, it believes it has access to a broader range of options to accelerate recoveries across the cross-collateralised security structure.

It is not a unitholder of any Bathla-related credit funds, and it has provided a $4.5 million loan facility to a special purpose loan vehicle relating to one of the near-complete Bathla construction projects.

La Trobe Financial, the $25 billion private fund manager, chief investment officer Chris Paton said the quality of any lending portfolio comes down to asset quality, to diversification and lending discipline.

"Where a lender experiences significant issues from the failure of a single borrower like the Bathla Group, it typically reflects either over concentration within the portfolio or higher risk positions with insufficient security protection," Paton said.

Financial Standard understands La Trobe has less than 0.15% exposure to the Bathla Group through first mortgage loans, with 96% of the project in completion.