Pallas Capital

7.5% Fixed Rate Senior Secured Note

Senior Secured Fixed Rate Note
7.50% fixed rate paid quarterly
Registered first mortgage warehouse facility
4 year note
Excellent security coverage supported by real Australian property
First loss investment protection facility up to 5% of the value of notes on issue
Notes will have the benefit of a negative pledge given by the issuer
Long-established lending relationships across multiple developers
Maximum loan term of 24 months
Prime property focus in major cities
Quarterly performance and compliance updates
Highly experienced team in financial markets and property development
Will be added to ABE/IRESS trading platform to improve secondary market liquidity

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Issuer Overview

Pallas Capital is a debt and equity fund manager specialising in the finance of Australian Residential and Commercial Real Estate. The business was established in direct response to the growing lack of credit in Australia’s mid-range property market; a situation exacerbated by the absence of reputable, risk-averse, non-bank lenders.

This has meant that private capital can increasingly access outsized returns relative to risk in an asset class not previously accessible.

With offices in Sydney, Melbourne, Brisbane and Auckland we have originated and managed more than $3.1 billion across 431 transactions in the past seven years, with current Funds Under Management in excess of $1.7 billion. With a flawless track record of capital preservation, Pallas Capital has already returned over $1.4 billion to investors with no loss of capital or interest on Pallas investments.

Key Information

Loans in which Pallas FM Trust participates will be introduced, arranged and managed by Pallas Capital, also part of the Pallas Group. In each case, the lender will be a special-purpose vehicle controlled or co-managed by a member of the Pallas Group.

Pallas Capital targets the following underlying assets:

eastern seaboard cities with a focus on Sydney and Melbourne;
secured property values in the $5 – $20 million range, where buyer and refinance liquidity is relatively deep;
non-specialised property assets including land with residential use, completed apartments, generic commercial property and construction loans.

Each loan arranged by Pallas Capital is secured against one or more quality property assets with a recent valuation.

These investments are further supported by:

detailed due diligence in relation to the experience, financial position and reputation of the borrower and guarantors;
a clear and achievable exit strategy, typically including at least two or three alternative exits;
experienced third-party legal firms engaged to document all loans to ensure each loan is correctly secured;
active management of all loans by the Pallas Capital team throughout the term, including asset recovery if required.

Risks

The risks listed below are not all of the risks associated with the activities of PWT or with an investment in Senior Notes.

Credit Risk: Defaults on loans in which PWT holds a Participation may result in a loss of principal invested in Senior Notes and/or interest due under those Notes. This is more likely where there is a substantial fall in relevant property markets.

This risk is mitigated by:

(a) The experience of the PWT/Arranger teams;

(b) The requirement that principals behind the borrowers generally give guarantees and that borrowers and/or principals are experienced;

(d) The short-term nature of loans in which PWT holds Participations;

(e) The prudent LVR parameters governing PWT;

(f) The guarantee of all Interest payments by the Arranger; and

(g) The availability of the Bank Guarantee.

Property Market Risk: A material decline in the value of properties in relevant market segments will erode the value of the property against which the loan is secured.

This risk is mitigated by:

(a) The factors referred to under ‘Credit Risk’ above; and

(b) The requirement for a recent valuation of underlying property by a reputable valuer.

III. Interest Rate Risk: A general increase in interest rates may lead to a reduction in the value of properties and/or increase financial pressure on the borrowers/guarantors.

This risk is mitigated by the factors referred to under ‘Credit Risk’ above.

Loan Concentration Risk: It is likely that, at any point in time, PWT will hold Participations in a small number of loans.
Exposure to the Pallas Group: Both the Trustee and the Arranger are members of Pallas Group, and these entities share management teams.

This risk is mitigated by PWT being established as a separate, special purpose vehicle. If necessary, PWT could source new Participations without the assistance of the Arranger.

Liquidity Risk: There will be no formal secondary market in Senior Notes.

This risk is mitigated by the Arranger undertaking to attempt to identify buyers of Senior Notes if a noteholder wishes to sell prior to redemption.

VII. Negative Carry: PWT may be unable to identify Participations in Qualifying Loans, or be able to do so only at rates of interest to PWT lower than the rate payable under the Senior Notes.

This risk is mitigated by the right of PWT to discontinue taking up new Participations and allowing the pool of Participations to run off, applying the proceeds in early redemption of the Senior Notes

7.5% Fixed Rate Senior Secured Note

Issuer Overview

Key Information

Risks

Updates

ABE Documents

Pallas Documents

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