The market that grew up in a bull market
Australian private credit has scaled fast, and almost entirely in good weather. The capability that matters when money is hard to recover has not yet been tested at scale.
By most market estimates private credit has grown at around 20 per cent a year over the past decade, several times the pace of bank lending or the bond market, to become a structural feature of how Australian business is funded. That growth happened in benign conditions. Defaults were rare. Asset values rose. The discipline of getting money back out of a struggling borrower was rarely required, and so it was rarely built.
There is a detail worth pausing on, because it is the first sign of the thing this report is about. The market cannot agree on its own size. The estimates do not differ at the margin. They differ by an order of magnitude.
The gap is definitional rather than anyone being wrong. The estimates differ on whether they count lending outstanding or fund assets, how they treat superannuation direct lending, whether real estate debt is included, and whether warehouse-funded non-bank lenders are in scope. But the fact that a market this large is this hard to measure is itself the opening observation. Opacity is not a side issue in private credit. It is a defining characteristic, and it becomes a serious problem at exactly the moment the cycle turns.
Because the cycle is turning. The conditions that built this market are ending, and a book built and staffed for growth is about to be asked a question it has not had to answer before: what happens when the borrower starts to struggle, and how early do you see it coming.
Sources: RBA Bulletin, October 2024; ASIC framing, November 2025; Alvarez & Marsal Australian Private Debt Market Review 2025.
The cycle is turning, quietly and then all at once
The Australian distress backdrop is no longer ambiguous. Companies entering external administration reached 13,413 in the year to 31 May 2025, up more than 34 per cent on the prior year. Construction and hospitality lead, but the pressure is broad, and tax-office enforcement has removed the forbearance that kept marginal businesses alive through the pandemic.
Tax enforcement
Pandemic forbearance has ended; the ATO is pursuing debt and directors hard.
Sector stress
Construction and hospitality lead the insolvency rise, with margins under sustained pressure.
Offshore transmission
First Brands and Tricolor show private-credit stress reaching banks and warehouse lines.
Private credit is now inside this picture, not adjacent to it. The Reserve Bank has been measured but clear about where the risks sit: opacity, stale valuations, the capacity to postpone recognising losses, leverage, and the interconnections between funds, banks and the wider system. Its March 2026 Financial Stability Review pointed to offshore stress as a warning, citing the First Brands and Tricolor failures and noting that banks had reported writedowns above USD 1b through their exposures to credit funds and warehouse facilities. The losses did not stay neatly inside the funds.
Offshore experience is the weather front arriving ahead of us. Moody's estimated that distressed restructurings made up around 65 per cent of all private credit defaults in 2025: in private credit, default rarely looks like a missed payment. It looks like an amendment, an extension, a quiet renegotiation. Fitch's monitoring of US private credit recorded the default rate stepping up past 9 per cent in 2025.
The pattern offshore is consistent: stress in private credit does not announce itself loudly. It accumulates quietly in amendments and extensions, then surfaces suddenly when a position can no longer be held together. That is precisely the profile that punishes a lender who is not watching closely.
"A rising default rate is itself a lagging signal. By the time it prints, the deterioration that caused it is months or quarters old. If the first you know of trouble is the number, you are already late."
Sources: ASIC insolvency statistics; RBA Financial Stability Review, March 2026; Fitch US private credit default monitor, Reuters March 2026; Moody's Analytics, April 2026.
Covenants were never the early-warning system
The covenant breach feels like an early warning. It is not. It is a lagging indicator dressed up as a trigger.
A missed leverage or interest-cover ratio reports a deterioration that happened well before the test date. The cash was tightening, the margin was slipping, the key customer was wobbling, for quarters before the ratio finally printed the result. A lender who learns of trouble when the covenant trips has already spent the cheapest, most workable months of the situation doing nothing, because they did not know there was anything to do. The compliance certificate is a rear-view mirror.
This matters more in private credit than in traditional bank lending, and the reason is structural rather than a matter of competence. A market that grew at 20 per cent a year by competing on speed and certainty of execution was, reasonably, optimised for origination. In a market where nothing was breaking, proximity to the borrower after the deal closed was an expensive thing to invest in and a cheap thing to underweight.
The regulator's own findings are consistent with this. In its November 2025 surveillance of 28 private credit funds, managing around AUD 29.8b between them, ASIC found uneven standards across exactly the capabilities that decide whether a fund sees trouble early.
Funds defined "default" so inconsistently that one reported a fifth of its book in default on a strict reading while others reported almost none, and ASIC expressed concern that the reporting may not give a true picture of non-performing and distressed assets. The commissioned report behind the surveillance went further, observing that larger and offshore-headquartered managers generally had staff experienced in workouts, while smaller managers often did not, and noting a reluctance to impair loans held to maturity even when the position had deteriorated.
Read together, these are not findings about carelessness. They are symptoms of distance. You cannot impair early what you cannot see early, and you cannot see early from arm's length. ASIC's remedy points the same way: it expects funds to maintain genuine expertise in credit and impaired-asset management, and to establish escalation protocols for the early signs of distress. The regulator is, in effect, describing proximity.
Sources: ASIC Report 820, November 2025; ASIC Report 814, September 2025.
"A reporting pack is not proximity. A covenant model is not proximity. Proximity is seeing deterioration early, understanding what it means, and moving before the borrower has run out of room."
Why proximity is harder in private credit
If proximity is the capability that matters, it is worth being precise about why private credit finds it structurally harder than a bank does. Four features of the model work against closeness, and each one sharpens as the cycle turns.
Concentration: one workout can move a whole fund
A bank diversifies across thousands of exposures. Many private credit funds, particularly wholesale ones, do not. In ASIC's review, retail funds averaged several thousand borrowers, but wholesale funds averaged just 47. At that concentration, a single troubled position is not a rounding error. It can move the entire fund's return, which changes both the stakes and, unhelpfully, the incentive to recognise the problem early.
Real estate: where the workouts will concentrate
A large share of Australian private debt is commercial real estate and development lending, an estimated AUD 92b, or close to a fifth of the domestic CRE lending segment. These loans behave very differently in distress: the outcome turns on valuation basis, construction completion, enforcement funding and sale timing, not just borrower cash flow. ASIC's 2026 surveillance agenda expressly targets wholesale funds focused on real estate lending. It is where the next wave of workouts is most likely to concentrate, and where valuation discipline matters most.
Fund-life and liquidity: pressure to extend rather than resolve
Bank lending sits on a balance sheet that can hold a position for as long as it needs to. A fund has a life, and in open-ended structures it has redemptions. ASIC observed that in a serious downturn, loan maturity can become an occasion to renegotiate and extend rather than to be repaid, and that some offshore funds have already faced rising redemption requests and imposed restrictions. The structural temptation is to amend and extend, to push the problem past the next reporting date, rather than to confront it while it is still fixable.
Incentives in distress: who captures the economics
In a bank, default interest and workout costs largely fall to the institution's own balance sheet. In private credit, the split is not standard. ASIC found that the allocation of default interest and workout fees ranged all the way from entirely to investors to entirely to the manager, and that some managers retain origination fees, workout fees and default interest. When the economics of a troubled loan can flow to the manager rather than the investor, the incentive to act early, transparently and in the investor's interest is not automatic. It has to be designed in, and ASIC found that often it was not.
| In a workout | Traditional bank | Private credit fund |
|---|---|---|
| Diversification | Thousands of exposures; one loss is absorbed | Wholesale books averaged 47 borrowers; one loss can move the fund |
| Hold horizon | Balance sheet can hold a position indefinitely | Fund life and redemptions create pressure to extend, not resolve |
| Workout economics | Default interest and costs fall to the bank's own book | Default interest and workout fees may flow to the manager, not investors |
| Workout capability | Established teams and processes | Larger and offshore managers have it; many smaller ones do not |
None of these makes private credit a worse form of capital. In the right hands it is faster, more flexible and more creative than a bank. But each feature raises the premium on proximity, because each one punishes a lender who finds out late.
Source: ASIC REP 820, average borrowers per fund, reviewed sample.
What distance costs: three situations that reached the formal stage
The clearest way to see the cost of late intervention is to look at situations where the formal machinery had to be used. None is a story about poor lawyering at the end. Each is a story about options that had already closed by the time anyone acted decisively. The value-preserving window is wide early and narrows fast.
These are illustrations, not proofs. They show how quickly value leaks once distress becomes public, not that closer monitoring would have rescued each one. The lenders involved were experienced and well advised. The point is simpler: by the time any of these reached the formal stage, the cheapest options had already gone.
Value preserved falls as intervention is delayed
Illustrative. The point at which a lender engages determines which options remain and how much value survives.
The Star Entertainment Group
By early 2025 Star was in open distress, its shares suspended, its liquidity running down. A private credit refinancing proposal from Salter Brothers Capital, with capacity of up to AUD 940m — enough to refinance the group's entire debt — was on the table. It collapsed in April 2025. The stated reason is the instructive part: the lender's requirements for priority and enforcement rights over Star's non-gaming assets could not be reconciled with the consents required from state governments and regulators, in the time the company's liquidity allowed.
The lesson is not that the financier was wrong to want security. It is that by the time a rescue is negotiated in public, with the clock set by dwindling cash and every counterparty watching, the borrower's options narrow week by week and the conditions a lender needs become harder to satisfy.
Jervois Global
Jervois, a Melbourne-headquartered cobalt producer, was recapitalised in 2025 through concurrent US Chapter 11 proceedings and an Australian voluntary administration and deed of company arrangement. Its secured lenders — the credit funds Millstreet Capital Management and PenderFund Capital Management — ended up owning the business, cutting funded debt from around USD 195.5m to roughly USD 31.6m and injecting about USD 145m in new equity.
This is the loan-to-own outcome in its clearest form. It was a competent, well-advised restructuring. But it is also what is left when earlier options have closed: the lender converts debt to equity and becomes the owner of a business it never set out to run. That is sometimes the right answer. It is rarely the cheapest one, and it is almost never the outcome the lender would have chosen had it been close enough to act two years earlier.
Healthscope
Healthscope, the private hospital operator, entered receivership in May 2025 over a debt pile of around AUD 1.6b, with McGrathNicol appointed receivers and KordaMentha as administrators, and Commonwealth Bank advancing AUD 100m to keep the hospitals operating. This was principally a bank-syndicate exposure rather than a private credit book, which is why it sits here as a contrast rather than a direct parallel.
But the dynamic is the one that matters. As distress became visible, Healthscope's debt traded on the secondary market at around 40 cents in the dollar, and special-situations funds moved in. Once distress is public, the debt reprices, and control passes from the original lenders to whoever buys in cheap.
The expensive outcomes are not caused by what happens at the formal stage. They are caused by how late the formal stage arrived.
The proximity premium: what early actually looks like
If the covenant breach is too late, and the formal process is far too late, the capability that preserves value sits much earlier — in the ordinary relationship between a lender and its borrower.
Proximity is not a soft idea. For a lender it means specific, practical things. It means understanding the borrower's real revenue and gross-margin drivers, not just their reported numbers, so that deterioration is visible before it reaches a ratio. It means seeing a live thirteen-week cash flow view rather than waiting on a quarterly compliance certificate. It means knowing what level of debt the business can actually service on a normalised basis, so that a breach confirms something already understood rather than springing a surprise. And it means a relationship close enough that the difficult conversation can happen early, while informal options still exist and still cost little.
| The capability | What it replaces |
|---|---|
| Knowing the real drivers | Reading reported results after the quarter has closed |
| A live 13-week cash view | Waiting on the quarterly compliance certificate |
| Normalised debt-serviceability | Reacting to a covenant breach as if it were news |
| An early, candid relationship | A formal notice that puts everyone on the defensive |
A word on formal insolvency, because a sophisticated reader will rightly be sceptical of anyone who claims it is always avoidable. It is not. Sometimes a business is genuinely not viable, and a clean, well-run formal process is the outcome that preserves the most value for everyone. The argument here is narrower and harder to dispute: formal insolvency is reached far more often than it should be, because intervention came too late to preserve the alternatives.
This is why timing dominates everything in distress, and why it is more acute in private credit than people expect. The moment distress becomes public or formal, enterprise value starts to evaporate. Customers reconsider their supplier. Key staff update their CVs. Suppliers tighten terms. Co-financiers reprice. The very act of visible intervention destroys some of the value the intervention was meant to preserve. Early and quiet protects what late and public destroys.
For a fund, the erosion that distance allows is not abstract. It shows up as impairment volatility, narrower recovery options, capital locked up in a position that cannot be exited, and a drag on realised returns that eventually reaches the LP report. The operational story and the fund-economics story are the same story, read from different ends.
There is a further dimension the next cycle will expose. It will not only test borrower quality. It will test manager credibility. With ASIC scrutinising valuations, impairment recognition and conflicts, and with LPs watching how managers behave when positions sour, the funds that can show they saw trouble early and handled it well will be the ones that keep raising. Proximity is becoming a question of manager reputation, not just recovery.
It is the capability we have built over close to thirty years on both sides of that relationship: in credit and on the recovery side, across informal restructures, lender reviews, refinancings and formal appointments. The pattern that runs through all of it is the same. The outcome is usually set long before the file is ever labelled a workout.
The early-warning framework
The test of proximity is whether you can answer simple questions about a borrower without having to go and ask. These are the questions that separate a lender who will see trouble forming from one who will be told about it by a covenant. They are worth running across any borrower in the book, and especially across the ones nobody is worried about.
Early has a horizon. In practice it means six to twelve months before liquidity runs out, or two quarters before a covenant is likely to break — not the week the ratio prints. That is the window in which informal options still exist and still cost little.
Do you understand this borrower's true revenue and gross-margin drivers, or only their reported results?
If you cannot explain how the business actually makes its money and where the margin really comes from, you will not see deterioration until it reaches the numbers.
When did you last see a thirteen-week cash flow forecast?
Cash is the leading indicator. A borrower who cannot produce a credible short-term cash view either does not have one, which is a warning, or does not want to show you, which is a louder one.
Is the debt serviceable on a normalised basis, or only on current, possibly generous, terms?
Strip out the covenant holidays and the one-off support. If the business cannot service its debt on a normalised footing, the breach is already coming and you are simply waiting for the test date to confirm it.
What would tell you trouble was coming before the next covenant test?
If the honest answer is nothing, the monitoring is a rear-view mirror. The early signals — a slipping key customer, stretching creditor days, a margin drifting down — sit in the business long before they reach a ratio.
If a breach came tomorrow, would it surprise you?
A breach that surprises the lender is evidence of distance. A breach that confirms what the lender already suspected is evidence of proximity. The difference is months of preserved optionality.
If it does go wrong, who moves first, and can they act early rather than enforce late?
Knowing who acts, and ensuring they are equipped to intervene and not just to enforce, is the difference between preserving the business and owning it.
"A breach that confirms what you already knew is proximity. A breach that surprises you is distance. The gap between them is measured in preserved value."
What good looks like
Proximity is not a posture. It is a system, and most funds have built only part of it.
A lender that sees trouble early has usually put a handful of things in place deliberately: a live borrower data pack rather than a quarterly certificate; objective watchlist criteria that escalate a credit before sentiment does; an independent-review trigger that fires on cash or covenant headroom rather than on opinion; a valuation discipline that holds up when the basis is contested; and a borrower-engagement rhythm close enough that the relationship is itself a monitoring instrument. Few funds have all of these. Many have one or two. The gap between two and five is where value quietly leaks.
The signals that matter are not exotic. On the borrower side they are the familiar tells a restructuring practitioner reads quickly: margins drifting down, creditor days stretching, ATO arrears building, management accounts arriving late, a covenant-holiday request, a key customer going quiet. On the fund side they are quieter but just as telling: extensions becoming routine, rising PIK income, valuation-committee exceptions, default interest treated as return. None requires special access. Each requires someone whose job is to be looking, and to know what they are looking at.
Borrower data pack
live, not quarterly
Watchlist criteria
objective, not sentiment
Independent review trigger
evidence, not opinion
Valuation discipline
holds when contested
Engagement rhythm
relationship as instrument
Most funds have built one or two. The gap between two and five is where value leaks.
What "looking" means also varies by strategy, and a good system reflects that. A cash-flow or sponsor-backed loan is monitored through operating performance, because the business is the security. A development or asset-backed facility turns instead on valuation basis, cost-to-complete and the gap between loan-to-cost and completed value. The early-warning signals are not the same, and a monitoring model built for one will miss the other.
Most funds can point to reporting, covenants and portfolio meetings. The harder test is whether those pieces operate together as an early-warning system before the borrower runs out of options.
Outlook
The structural forces pushing Australian businesses into distress are not going away. The cycle will keep turning, tax enforcement will stay firm, and the long benign period in which private credit grew up is over. More borrowers will struggle, and more private credit books will be tested.
In that environment, the funds that come through best will not be the ones with the best enforcement playbook or the sharpest insolvency lawyers. Those are the tools of last resort, and reaching for them is usually a sign that something was missed earlier. The funds that preserve the most value will be the ones close enough to their borrowers that they see trouble forming, act while it is still cheap to act, and never let the situation reach the point where enforcement is the only option left.
Every fund manager believes they are close to their borrowers. Far fewer have tested whether they are close enough to see the next problem before it becomes a restructuring. The difference between a fund that sees the turn coming and one that is told about it later is not access to data. It is proximity to the borrower, and proximity is something you can audit before you need it.
Sources and notes
1. Reserve Bank of Australia, "Growth in Global Private Credit", RBA Bulletin, October 2024.
2. ASIC, Report 820: Private credit surveillance, retail and wholesale funds, 5 November 2025 (28 funds; ~A$29.8b reviewed; two wholesale funds stress tested; default-definition findings).
3. ASIC, Report 814: Private credit in Australia (commissioned report), 9 September 2025 (workout staffing, impairment, fee and incentive findings).
4. Alvarez & Marsal, Australian Private Debt Market Review 2025 (market size, growth and forecast; CRE allocation).
5. Reserve Bank of Australia, Financial Stability Review, March 2026 (First Brands, Tricolor; bank writedowns).
6. ASIC, Corporate Insolvency Update, Issue 36, June 2025 (13,413 external administrations to 31 May 2025).
7. Moody's Analytics, private credit default-rate commentary, April 2026 (distressed exchanges ~65% of defaults).
8. Fitch US private credit default monitor, as reported by Reuters, March 2026 (9.2% in 2025).
9. The Star Entertainment Group, ASX announcements, March to April 2025.
10. Jervois Global: KPMG appointment notice (VA 12 March 2025, DOCA 9 May 2025); company recapitalisation announcements, 2025.
11. Healthscope: company receivership announcements and McGrathNicol appointment, 26 May 2025.
This report is prepared by Rebound Advisory for general informational purposes. It does not constitute legal or financial advice, and it does not comment on the conduct of any named party. Named situations are described from public sources to illustrate market dynamics. Directors, lenders and advisers should seek advice tailored to their specific circumstances before taking any action. © 2026 Rebound Advisory. All rights reserved.