Authored by Hugh Selleck (Managing Director)
When GCI’s Strategic Capital team assesses an investment, our starting point is not just upside potential — it’s how the story could unfold if things go wrong. That might sound pessimistic, but in private credit, especially where borrowers are navigating complexity, it’s essential. Understanding the downside — and planning for it — is what enables us to create credit solutions that are truly transformational. Ones that give borrowers a pathway forward and give investors clarity on the risk.
Every transaction we back is assessed across multiple exit pathways, including a downside case. This isn’t a box-ticking exercise. It’s about asking: if something changes — performance, timing, leadership, strategy — how do we protect our position while giving the borrower space to recover?
A downside scenario typically arises when a borrower is unable to meet its obligations and cannot articulate a credible path to repayment. At this point, two routes usually emerge:
A. The informal workout.
In most cases, this is our preferred path. It involves working constructively with the borrower and their advisers to agree on a plan for repayment. This usually means entering into a forbearance arrangement, where we temporarily hold off on enforcement to allow the borrower time to execute the plan. GCI’s involvement is active — our team works closely with the borrower’s management, monitoring performance, troubleshooting issues, and adapting the plan as needed.
B. The formal insolvency process.
This is a last resort. We only pursue this route where a borrower becomes uncooperative and unreasonable (which may include where we believe we are not being presented with the truth) or where another creditor initiates proceedings that compromises our position. In these cases we would appoint a voluntary administrator (VA) or receiver to take control of the business or its assets, seeking to sell or restructure them to repay creditors, including ourselves.
Since 2020, the Strategic Capital team has committed over $350 million across 30 transactions. Like all private lenders operating in a volatile environment, we have seen a handful of defaults. These have typically been covenant breaches or technical defaults — not financial ones — and until late 2024, we had never initiated an enforcement process.
Over the past six months, that changed. Three of our borrowers triggered more serious defaults, and our team became deeply involved in managing workouts and insolvency processes. Two of those loans have since been repaid in full and we are confident of a full recovery on the third. This experience has sharpened our thinking and affirmed the core principles of our approach. Here’s what we have learned from operating in the downside.
- Be prepared
My father served in the Australian military for 20 years. One of his favourite sayings (which stuck with me) was: “Time spent in reconnaissance is seldom wasted.”
That idea has served me well in business, and especially in downside scenarios. A formal insolvency isn’t something you rush into. It takes preparation and consideration. Before appointing a VA or receiver, we typically bring in an investigating accountant (IA) to conduct a forensic review of the business. That includes identifying critical suppliers, staff, customers and service providers.
Getting under the hood early allows us to anticipate issues and, in some cases, avoid a formal appointment altogether. If enforcement does become necessary, that groundwork can significantly reduce the cost and duration of the process and hence the risk to our capital.
- Watch your flank
Credit risk doesn’t exist in isolation. Understanding a borrower’s creditor landscape — not just the headline liabilities, including all parties they owe money to and under what terms — is critical.
The Australian Tax Office, for instance, has powers that many lenders overlook. Garnishee notices can freeze cashflows overnight. Trade creditors can pull supply at a crucial moment. Competing security holders can throw a transaction into chaos.
Early mapping of the creditor landscape, including checking PPSR registrations and identifying key risk counterparties, is something we now consider essential in any downside planning.
- Remove the obstacles
Sometimes, the business isn’t the problem — the borrower is. Management may be out of their depth, misaligned, seeking to obscure the facts or simply unwilling to engage. Distressed borrowers can sometimes have a propensity to exercise poor judgement and questionable ethics.
In these cases, we have found that introducing an independent party — either a formal appointee or new operational leadership — can unlock value. Insolvency practitioners, in particular, often run a more transparent sale process that drives better outcomes for all creditors. They bring statutory obligations, distance from emotion, and often a better reputation with the market than a distressed seller.
At GCI, we are always focused on the way out. Even in formal processes, we work closely with appointees to maximise outcomes. We want all stakeholders to walk away with clarity — and ideally, value.
- Control the timeline
In private credit, time is not a neutral force — it erodes value. Protracted enforcement processes can drain working capital, erode stakeholder confidence, and ultimately harm recovery.
Our approach is to keep decision-making tight. That means being ready with plans before they are needed. It means knowing when to push and when to pause. And it means never letting a situation drift.
One of the learnings from our recent enforcement experience is that many borrowers — and some advisers — assume time will buy them flexibility. It rarely does. Decisiveness, on the other hand, almost always improves outcomes.
A multidisciplinary lens on distress
Our Strategic Capital team brings experience across insolvency, law, strategic consulting and private equity. That diversity gives us an edge when navigating downside scenarios. We understand the dynamics in a distressed business — not just from a credit perspective, but operationally, commercially, and legally.
But beyond that, we know how to structure solutions that work in real life. That’s the power of transformational credit. We don’t just lend money. We partner with businesses to unlock value — even when it gets difficult.
Our playbook is not rigid. Every situation is different. But what remains constant is our commitment to preserving optionality, protecting capital, and working with borrowers to find the path through.
If you have a scenario you would like to discuss, please contact the GCI Strategic Capital team. We welcome the opportunity to work with borrowers in delivering successful outcomes.