Zagga Investments
Zagga is a boutique investment manager and non-bank lender focusing primarily on the Commercial Real Estate Debt sector. Zagga directly holds both an Australian Financial Services Licence, and an Australian Credit Licence, from ASIC.
Zagga operates with an ‘investor first’ approach, led by a strong executive team and supported by highly experienced credit and operations teams. Zagga’s objective is to generate alternative investment opportunities by facilitating the funding of high-quality loan transactions. It does this via both a pooled, investment fund model, as well as via a direct, fractional model on its proprietary platform.
Since its inception, Zagga has funded over 180 transactions across a spectrum of loan purposes including business, commercial, residential, and property, helping borrowers bring major projects to fruition whilst also providing investors with attractive returns.
Zagga has originated in excess of A$850m in loans and the current loan book funded through Zagga’s platform has an average deal size of A$5.4m, with a tenor of 11.4 months and a loan to valuation (LVR) ratio of approximately 64%
Zagga Investments 2 Pty Ltd is the Trustee of the Zagga Investment Lending Trust 7 (the Trust) and has contracted Zagga Investments as the Manager.
Proceeds from the Class A Notes are used to fund a proportional (fractional) interest across a number of short- and medium-term (up to 24 months), senior-secured loans to approved borrowers, which include property developers and owner-builders. Loans can be made to individuals, companies, or trusts.
Zagga targets the Eastern Seaboard cities, with a particular focus on greater Sydney and to a lesser extent, greater Melbourne. Loans are first mortgages secured over non-specialised property (where refinance and liquidity is likely to be relatively deep), including land and residential use, as well as generic commercial property and construction loans. As a general rule, Zagga will not fund a new developer/contractor.
Subordination is provided by the Class B Seller Notes which were at 8.0% of the total borrowing base at issue, increasing to at least 10.0% as at 20 June 2022. All principal losses on the underlying loans will be allocated to the Class B Seller Notes first, resulting in a write-down of their principal balance before any losses are allocated to the Class A Notes.
Key Information
- Zagga Investments Lending Trust 7 first ranking Class A Notes
- 6% fixed rate paid quarterly
- 4-year secured note (29/11/2025)
- First mortgage warehouse facility
- First-ranking general security agreement over the assets of the Trust
- Notes will have the benefit of a negative pledge
- Further credit enhancements such as liquidity reserves, maximum single exposure pool parameters
- Subordination is provided by the Class B Seller Notes Non-performing loans will be replaced by a performing loan within 14 business days
- The lending Trust has a four-star (superior Investment Grade) Rating from SQM
Risks
The risks listed below are not all of the risks associated with the activities of Zagga or with an investment in the Secured Notes.
1. Credit Risk: Defaults on loans in which Zagga holds a Participation may result in a loss of principal invested in Secured Notes and/or interest due under those Notes. This is more likely where there is a substantial fall in relevant property prices.
This risk is mitigated by:
(a) the experience of the Zagga/Arranger teams;
(b) the requirement that principals behind the borrowers generally give guarantees and that borrowers and/or principals are experienced;
(c) the requirement for a recent valuation of underlying property by a reputable valuer;
(d) the short-term nature of loans in which Zagga holds Participations;
(e) the prudent LVR parameters governing the Zagga Note;
(f) all principal losses on the underlying loans will be allocated to the Class B Seller Notes first
2. 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 (within 90 days) of underlying property by a reputable valuer.
(c) the average LVR across the loans held by the Trust.
3. 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.
4. Exposure to the Zagga Group: Both the Trustee and the Arranger are members of Zagga Group, and these entities share management teams.
This risk is mitigated by the Trust being established as a separate, special purpose vehicle. If necessary, Zagga Investment can be replaced as Trustee / Manager and Arranger.
5. Liquidity Risk: There will be no formal secondary market in the Secured Notes.
This risk is mitigated by the Arranger undertaking to attempt to identify buyers of Secured Notes if a noteholder wishes to sell prior to redemption.
ABE will add the Note to the IRESS trading platform which will also improve the secondary market liquidity.