The Merricks Capital Agriculture Credit Fund (the Fund) returned 0.9%* in June and 10.2%* on an annualised basis since inception. The Fund intends to declare a 4.0% distribution at 31 July 2024, which will be paid mid-August.
Across the Australian agricultural market, the outlook is largely positive with ABARES forecasting the FY25 season to be the third largest GDP contributor for agriculture on record, recovering 2% from FY24 (previously the third highest on record). This will be driven by better conditions over winter and improved livestock prices and production.
One new loan settled during the month. A 2.3% allocation to the Fund, secured by agricultural grazing properties 80km from Perth with a peak LVR of 50% and forecast to deliver an investor IRR of 12.4% (net of fees and costs).
One loan repaid in full during the month, a 8.3% allocation to the Fund, secured by cropping properties near Moree, NSW. The borrower was able to refinance to a major bank after three favourable seasons of cotton and sorghum harvest. The loan returned 10.0% IRR (net of fees and costs) and prior to borrower-led property sales in 2023 was one of the Fund’s largest agricultural loans. This repayment has reduced the Fund’s weighted average LVR down from 55% to 54%.
Part-repayment occurred on two loans during the month, one specialised industrial facility where a key equity partner recapitalised the underlying business and will fund future product enhancing CAPEX with a $60m investment. The second repayment was a Western Australia mixed farming loan that received $9m from refinancing one of the secured properties and lowering the loan LVR to <55%.
One borrower, an ASX-listed egg producer, saw its business operations impacted by the VIC & NSW Avian Influenza outbreak during the month. The business will complete a $6m rights issue to bridge working capital after 35% of the hens were depopulated; the business plans to make a claim under the industry AI insurance scheme. The security position of the business remains <55% against land assets and we remain comfortable with the senior secured loan.
Due diligence continued on $125m of senior secured loans with a weighted average LVR of 55% and a forecast investor IRR of 11.8% (net of fees and costs) across grazing, horticulture and dairy opportunities. The Fund is looking to increase its direct exposure to dairy with the FY25 drop in the forward milk price creating favourable lending opportunities as banks see interest coverage ratios compressed.
*These returns are stated net of fees and costs
