First Read: Australian Banking Sector Update "Insolvency Group Panel" Storey

Research evidence excerpt

First Read: Australian Banking Sector Update "Insolvency Group Panel" Storey

refinance. Interestingly, larger retailers do not necessarily have stronger Zack Pontey

funding structures, meaning scale is not a proxy for resilience. Finally, opportunistic and Associate Analyst

zack.pontey@ubs.com

distressed investors are actively watching the market for stressed assets in real estate

+61-2-9324 2475

that are non-interest producing, transport, logistics, construction, agri, retail, mining

(broadly) and renewables (particularly wind and solar). But this is predominantly

characterised by change and restructuring rather than pure insolvency.

Outlook over the next 12 to 36 months: Sustained. Not catastrophic.

The insolvency cycle is expected to be sustained but not catastrophic, with the panel

expecting ~2-3 years of solid activity, yet also noted no intentions to increase their

employee base due to this expected pick up in activity. Inflation is also a key risk that the

panel believes is not fully captured by CPI numbers, particularly for construction and

logistics companies which are experiencing inflation above headline figures. This is

leading boards and management teams to deliberate around the trade-off in either

prioritising funding costs or attaining funding tenor in a higher rate environment.

Additionally, a notable governance change that has been emerging and is likely to

continue is debt providers seeking board or observer seats as a condition for continued

support. This was largely unheard of ~10 years ago.

UBS views and comments: a key leading indicator

A key view reinforced from our panel discussion centered around monitoring sector

credit insurance policy changes and pricing. Once a credit insurer leaves a sector, it