July 29, 2022

Leverage on Leverage exposed when the economic cycle turns


A Melbourne-based property developer entered liquidation on Monday, citing interest rate hikes, lack of labour, elevated materials costs and Covid-19 lockdowns as the reasons for its collapse.

Merricks Capital does not have any exposure to this developer.

Private debt transitions old asset into world-leading agriculture processing facility.

This week the Merricks Capital investment management team visited Dennington, a 35-hectare milk processing site 5km from Warrnambool in western Victoria.

Merricks Capital funded the acquisition of the site by ProviCo in May 2020 after Fonterra closed the plant in 2019 to consolidate their Australian processing assets in response to a shrinking milk supply pool.

Since acquiring the site and with the support of a private equity backer, ProviCo has repurposed the site to manufacture high value dairy fractions, through state of the art technology and move away from base commodity production of lower margin milk powder products. This is a typical example of where we are supporting the agriculture supply chain by funding the repositing of an asset that sits outside bank appetite.

To replace the plant at the time of acquisition would have cost more than $150m (versus our loan of approximately $20m), however, it required the fulcrum capital to transition the asset from the highly competitive commodity milk processing business.

Merricks Capital has strong expertise in the dairy sector with a track record of an average investment IRR of more than 12% (net of fees and costs).

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