The security package behind a private credit position.

Where a facility is secured by real property, the mortgage is registered on the title and its priority is fixed by the order of registration, not by the order in which the loan was negotiated or drawn. A first ranking mortgage is repaid in full, principal, interest and enforcement costs, before any value flows to a mortgagee ranking behind it. A second ranking mortgage is repaid only from what remains after the first ranking mortgagee's claim is satisfied, and in a forced sale of a stressed asset that remainder can be modest or nil. The difference between the two positions is not a matter of degree. It changes the credit analysis entirely, because a second ranking mortgagee's actual recovery depends as much on the size and terms of the facility ranking ahead of it as on the borrower's own conduct.

Where a borrower is a company, a general security deed is usually the instrument that extends a lender's reach beyond a specific mortgaged property to the whole of the borrower's assets and undertaking: plant, receivables, inventory, contracts, bank accounts and intellectual property. A general security deed takes effect as a security interest under the Personal Property Securities Act 2009 (Cth), and its practical strength depends entirely on perfection, meaning the security interest is registered correctly and promptly on the Personal Property Securities Register against the borrower's correct details. An unregistered or incorrectly registered security interest can lose priority to a later, properly registered interest, or in some circumstances vest in the borrower itself on the appointment of an external administrator or liquidator, extinguishing the lender's claim to the very assets the deed was meant to capture. Perfection is a mechanical step, but it is the step on which the rest of the security package's value depends.

A general security deed also distinguishes between a borrower's circulating assets, broadly the stock, receivables and cash that turn over in the ordinary course of business, and its non circulating assets such as plant, equipment and fixed contractual rights. That distinction matters on an insolvency, because employee entitlements and certain other priority claims rank ahead of a secured creditor's claim over circulating assets specifically, in a way they do not over non circulating assets. A lender relying heavily on a borrower's receivables book as its practical security should understand that this priority carve out exists and size its expected recovery accordingly, rather than treating the security deed as a uniform claim over everything the borrower owns.

A guarantee is a promise by a third party, commonly a parent company, a related entity or an individual director, to answer for the borrower's debt if the borrower does not. It is support for a credit position, not security in the strict sense. Unless the guarantee is itself backed by a mortgage or a general security deed over the guarantor's own assets, a guarantee is only as valuable as the guarantor's balance sheet on the day it needs to be called, and that balance sheet can deteriorate in exactly the circumstances, group wide financial stress, that cause the borrower to default in the first place. A lender assessing a guarantee should ask what the guarantor actually owns free of other claims, not simply whether a signed guarantee sits in the loan file.

Guarantees also carry structural limits worth understanding before they are relied on. Many guarantees given by a corporate group are capped at a stated amount rather than the full facility, and the cap, not the headline facility size, is the real extent of the support. Where a company is asked to guarantee or secure debt used to fund the acquisition of its own shares or those of its holding company, the financial assistance restrictions in Part 2J.3 of the Corporations Act 2001 (Cth) generally require shareholder approval or another available exemption before the guarantee can be validly given, and a guarantee given in breach of those provisions is exposed to challenge. A guarantor's own directors also owe duties to that guarantor company, and a guarantee given without a genuine commercial benefit flowing back to the guarantor can be vulnerable to challenge by the guarantor's own creditors or a later liquidator. None of this makes guarantees worthless. It means a guarantee should be reviewed as a legal instrument with its own capacity questions, not treated as a simple credit enhancement layered on top of the real security.

Where more than one lender holds security over the same borrower or the same asset, an intercreditor deed, sometimes called a priority deed or a deed of priority, is the document that actually governs what happens between them, and it typically matters more to a second ranking lender's recovery than the mortgage instrument itself. Without an intercreditor deed, the general law priority rules apply by default, and those default rules do not necessarily give a lender the practical protections, standstill periods, notice rights and an agreed payment waterfall, that a negotiated deed provides. A private credit fund taking a second ranking position, or lending alongside another financier under a shared general security deed, should treat the intercreditor deed as a primary underwriting document, not a routine execution formality signed after the commercial terms are settled.

The clauses that describe what happens on enforcement are the least read part of most loan documents and the most consequential once a facility is in genuine stress. A registered mortgagee's enforcement of real property security is governed by the relevant state Torrens title legislation and generally requires a default notice, a prescribed remedy period, and adherence to a duty to obtain a proper price on any mortgagee sale. A general security deed holder's enforcement under the Personal Property Securities Act follows separate procedures for seizing, retaining or selling personal property, and the appointment of a receiver, most often under the powers the security document itself confers, engages Part 5.2 of the Corporations Act 2001 (Cth), which sets out a receiver's duties and reporting obligations once appointed. These are not interchangeable processes. A lender or a fund manager needs to understand which mechanism applies to which part of the security package, because the enforcement pathway for a mortgage over land is not the pathway for a general security deed over a receivables book, and a facility secured by both may need to run more than one process at once.

The practical reality of enforcement is slower and less certain than a loan document's clean sequence of default notice, demand and sale might suggest. Statutory notice periods extend the timetable before any sale can proceed. A stressed asset frequently sells for less than its book or last valuation, particularly where the sale is conducted under enforcement pressure rather than as an orderly disposal. A second ranking lender or an unsecured creditor may contest the process, adding delay and cost that erodes recoveries further. Where a facility sits inside a pooled private credit vehicle, the trustee or responsible entity managing that vehicle also carries its own duties to the fund's investors around how and when enforcement decisions are made, and those duties do not disappear because a borrower has defaulted. None of this is a reason to avoid modelling enforcement. It is the reason to model it before the facility is drawn, using realistic timeframes and realistic recovery assumptions, rather than assuming the security package will behave exactly as the loan agreement describes it.

A security package is not a single fact to confirm and move past during due diligence. It is a set of separate instruments, mortgages, general security deeds, guarantees and priority arrangements, each with its own creation, registration, ranking and enforcement mechanics, and each capable of underperforming the credit analysis if any one of those mechanics is assumed rather than checked. The discipline that protects a private credit position is the same discipline that protects any secured lending relationship: confirm what is actually captured and how it ranks, verify that registration is current and correctly perfected, understand the real capacity and value standing behind any guarantee, negotiate the intercreditor deed as a substantive document rather than a formality, and model the enforcement pathway, with its statutory notice periods and realistic recovery timeframes, before the facility settles. Every one of those steps is cheaper and more effective before a loan is drawn than after a borrower has stopped paying, and a security package reviewed only once a default has occurred is a security package reviewed too late to change.