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Merricks Capital Agriculture Credit Fund Portfolio and Market Update June 2022

The Merricks Capital Agriculture Credit Fund returned 0.7% in June and 8.7% annualised for financial year 2022 (FY22). The Fund also declared a final full year distribution of 8.0%. The Fund delivered these returns secured against high-quality agricultural land and supply chain assets with a portfolio weighted LVR of 57% (as of 30 June 2022) and >90% capital deployed.

The global macroeconomic environment evolved substantially in FY22 with central banks moving away from providing pandemic-related liquidity to raising cash rates to curb surging inflation. We also saw the war in Ukraine fracture global energy supply chains and heightened concerns around food security. As volatility increased in the global macro environment, capital has been less readily available to businesses and the demand for private credit has intensified.

In the agricultural sector, the past year’s gross value of primary production in Australia is estimated to be the strongest on record and there is an increasingly large space for private credit to fund growth, developments, and restructures. We continue to believe that the sector is headed toward another season of above-average climatic conditions and commodity prices, consequently we expect that producers will seek to capitalise on production conditions to improve balance sheets, increase capital expenditure, and expand operations.

We settled one new loan in June and extended an existing loan which improved the investor return and reduced the maximum LVR. The new investment was a $7m agricultural loan to fund the settlement of a large multi-use property in Western Australia. This loan is expected to generate a forecast investor IRR of 9.0% (net of fees and costs).

Merricks Capital’s outlook for private credit in 2022/23 remains positive. The investment pipeline reflects strong risk-adjusted senior debt opportunities, and we remain highly prudent on new loan selection, loan structuring and new loan due diligence hurdles. As we deploy capital in a more volatile economic climate, our credit risk mitigation strategy will continue to focus on ensuring that the portfolio’s loans have multiple paths to repayment at expiry. The weighted average time to expiry of Fund’s loans is 14 months.