The Bathla Collapse: Why First Mortgage Security Protects You

You may have seen the headlines: Bathla, one of Sydney’s largest residential developers with over 200 projects, has entered administration owing an estimated $3.3–3.4 billion, largely to private credit lenders. Given the scale, it’s understandably drawn attention.

What happened

Bathla was funded by 40-plus private credit lenders, from large institutional managers to smaller regional funds. When it entered administration in late August, some lenders paused withdrawals on the funds most exposed while they work through recoveries.

Why we only invest in secured first mortgages

At Hewison Private Wealth, we have invested in direct loans, secured against property, for over 30 years. Every mortgage we recommend sits in first (senior) position, meaning you rank ahead of every other creditor, including second mortgage and mezzanine lenders, in a claim over the asset. If a borrower defaults, you are repaid in full from the sale proceeds of the property before anyone else sees a dollar.

We deliberately avoid second mortgage and mezzanine debt. It typically offers higher headline returns, although only because it carries materially more risk. In a default, those lenders only recover what’s left after the first mortgage holder is repaid in full, which in a downturn can put capital at risk.

Our LVR discipline

The loan-to-value ratio (LVR), which means how much we are prepared to lend against a property’s independently assessed value, is another key safeguard. Our internal Investment Committee reviews every mortgage on its merits, and we will not invest where LVR exceeds 67%, well below the level behind much of the higher-risk Bathla lending. Generally, our LVRs sit closer to 60% on average. This buffer means that even in a discounted or forced sale, there is sufficient equity in the asset to repay the loan before capital is at risk, combined with independent, tier-one valuations and first mortgage security.

The media ‘noise’

Headlines describing a “GFC-like vibe” attract major attention, but the situation for investors is not consistent. Some Bathla lending was conservative, secured against completed property. Some was far riskier, secured against unfinished projects valued “as if complete.” Treating these as the same story is misleading. Also, a creditor to Bathla is very different to a lender with a first secured mortgage.

It is also worth separating two things the coverage often blurs: a borrower default is not the same as investor capital loss. A well-secured lender can enforce its security, take control of the property, and manage its sale independently of the administration process. Several conservative lenders exposed to Bathla have already done exactly this, within days of the collapse.

Where this leaves investors

A collapse this size is rare, but managing a default with strong security is a normal part of a lender’s role; exactly what disciplined loan structures and an experienced team are built to handle.

If you have any direct exposure, we will contact you. We continue to monitor every private credit position in your portfolio, and can confirm the security, LVR and expected outcome for any affected loan. As always, please don’t hesitate to contact us to discuss your portfolio.