Debt markets beyond the big four

Debt markets beyond the big four

As companies seek debt funding, Australia’s big four banks aren’t necessarily first on their list. With new debt sources emerging, there are fresh funding opportunities for those keen to refinance, merge, acquire and grow.

Scott Mesley

ESG Growth Leader, Client Growth & Markets

KPMG Australia

Pack of wolves in a winter forest

M&A activity is looking positive in Australia and companies are striving for organic growth. Therefore it makes sense that 27 percent of KPMG's Evolving Deals Landscape 2018 survey respondents are set to source debt funding in the year ahead, up from 18 percent last year.

“Activity levels in the debt markets typically track general market conditions including M&A activity, and that is certainly what we have seen recently,” says Scott Mesley, Partner, National Leader, Debt Advisory Services. “Organisations have been more active in terms of growth, acquisitions, and new projects, and that has been driving increased activity in the debt markets.”

Of those contemplating refinancing, an upcoming maturity of debt is the primary reason, rising from 44 percent in 2017 to 57 percent this year. The next driver is organic growth at 44 percent, and funding M&A at 32 percent. Over half of participants (53 percent) expect that the cost of sourcing debt will remain at current levels in the year ahead, while 45 percent expect it to increase.

The big four banks have traditionally been the first port of call for those seeking debt funding, with the 2017 survey showing that they were the primary source for 76 percent of respondents. This year that dropped to 65 percent, indicating a shift towards alternative sources of funding.

However, while organisations appear open to non-bank debt funding, 89 percent of respondents said they had only a moderate or limited understanding of the non-bank market, demonstrating a need for advice in sourcing from these alternative markets.

“As debt funding markets continue to evolve, it is more important than ever for borrowers to have a clear understanding of the various sources of debt capital available to support their business and growth aspirations,” Mesley says.

Sources of funding

As a result of increasing regulatory requirements in the banking sector, new domestic and international players are coming into the Australian market, and the landscape for non-bank lending has significantly altered. This is particularly prevalent in the real estate sector, Mesley explains.

“The banks have, as a result of regulatory capital changes, pulled back from the property market and have become more selective in the projects and borrowers they will support. That has created an opportunity for non-bank lenders to play both in the development space, as well as in longer term institutional debt capital to support capital hungry borrowers,” he says.

New non-bank funding sources include existing players in the Australian market which are building out their offerings, along with a range of US and European investment managers that have established a domestic presence.

“The ‘investor universe’ is very broad – a mix of funders playing in various sectors, size levels and across the risk spectrum from investment grade to leveraged and high yield,” Mesley says.

The process

Beyond property, organisations in financial services (particularly fintechs and non-bank financial institutions), private equity, infrastructure, power and renewables, healthcare and technology, have been particularly open to working with non-bank debt funding.

“The process of accessing funding typically involves an acquaintance period to understand each party’s key drivers and expectations to ensure there can be an alignment of interests. Most institutional debt investors are looking to establish long term funding relationships so are similar in approach to bank lenders. Others are more deal driven and focused on filling shorter-term gaps in borrower’s funding structures and projects,” Mesley says.

In normal debt funding or refinancing situations, the process can be quite lengthy, with an extensive due diligence and credit or investment committee approval process. However, in the event of a stressed transaction or similar, opportunity-based investors are equipped for an expedited process, sometimes as quickly as 2 to 3 weeks for an approval.

Looking ahead

The influx of non-bank lenders has been a permanent change in the landscape of the financial services market – a change that Mesley expects is only going to accelerate. He says combining traditional bank lending with institutional capital sources will make sense for many borrowers in this new environment.

“Bank and non-bank funding is not mutually exclusive, they can co-exist, but it takes work to understand how you bring in institutional capital alongside, or in addition to, bank capital. Forms of documentation, security structure, levels of recourse, voting, and inter-creditor arrangements are part of the suite of requirements.”

One day Mesley predicts this approach could be business as usual for Australian companies. But until then he recommends sourcing expert advice to help facilitate the process.

“It’s useful to work with an independent advisor who understands the investor universe – there are over 100 different types of debt investors who each have varying sectors, deal sizes and risk appetite – and it can be challenging for a borrower who is not active in the debt market to find the right provider of capital suited to the individual client.”

Continual improvement is vital but not every company has this on the agenda. 

KPMG Australia acknowledges the Traditional Custodians of the land on which we operate, live and gather as employees, and recognise their continuing connection to land, water and community. We pay respect to Elders past, present and emerging.

©2022 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation.

Liability limited by a scheme approved under Professional Standards Legislation.

For more detail about the structure of the KPMG global organisation please visit

Connect with us

Save, Curate and Share

Save what resonates, curate a library of information, and share content with your network of contacts.