Information only disclaimer. The information and commentary in this email are provided for general information purposes only. We recommend the recipients seek financial advice about their circumstances from their adviser before making any financial or investment decision or taking any action.

In our last article, we discussed why NZAB Capital was established and the role transitional capital can play alongside traditional banking relationships.

One of the most interesting observations since launch has been the nature of the enquiries coming across our desk.

Many people naturally assume non-bank lending is primarily associated with businesses under pressure. While transitional capital certainly has a role to play in helping businesses navigate periods of change, some of the strongest demand we are seeing is actually being driven by opportunity.These are often good operators, with strong assets and clear strategies, who have identified an opportunity and need a capital solution that matches the timing of the opportunity in front of them.

Importantly, not all of those conversations have resulted in NZAB Capital lending. In a number of cases, working through the strategy has identified a pathway back to traditional bank funding that the client either had not considered or did not believe was achievable. That is entirely consistent with our approach- the objective is not to place every opportunity into NZAB Capital, but to help farmers access the right capital for the right strategy.

Historically, New Zealand agriculture has been built by farmers willing to back their judgement. While bank funding remains the backbone of the sector, opportunities rarely arrive when balance sheets, valuations, and lending criteria align perfectly.

Increasingly, we are seeing situations where the strategy is clear, the operator is capable, and the economics make sense, but timing becomes the challenge.

Here are some examples of the types of situations we are seeing.

"The neighbouring farm has come up – and we need to move"

This remains one of the most common scenarios we see.

Sometimes it is literally the neighbouring farm. Other times it is a larger strategic acquisition that significantly improves scale, labour efficiency, irrigation management, grazing flexibility, or the long term economics of the business.

The challenge is that the acquisition often needs to be secured before other assets can be sold, equity can be recycled, or operational benefits can be realised. The resulting leverage metrics may sit outside normal bank criteria, albeit only temporarily.

In these situations, transitional capital can provide the ability to secure the opportunity today, while asset sales, improved earnings, or balance sheet restructuring over the following few years create a pathway back to conventional bank funding.

In some cases, simply having a clear acquisition strategy, a credible asset sale programme, and a well-structured funding pathway has been enough to bring a main bank back to the table. In others, transitional capital may provide the bridge until those milestones are achieved.

"We can see value where others see uncertainty"

Another theme emerging involves sectors that have experienced a difficult few years.

Some sectors in horticulture and viticulture provide good examples.

Periods of earnings volatility often result in reduced bank appetite, despite some businesses having strong assets, capable management, and compelling long term strategies. In some cases, access to traditional funding becomes significantly more difficult just as opportunities begin to emerge.

Ironically, these same periods can create some of the best acquisition opportunities. We're seeing experienced operators identify quality assets that may not have been available, or affordable, several years ago.

The strategy is often not to hold higher leverage permanently. Rather, it is to acquire quality assets at attractive values, improve performance over time, and ultimately refinance back to a main bank once both the business and sector conditions have normalised.

"We want the certainty to negotiate from a position of strength"

One of the more interesting uses of NZAB Capital is not necessarily the lending itself, but the certainty that comes from having capital available.

Having approved funding in place can allow a farmer to negotiate more confidently, move decisively through a purchase process, or secure a better outcome when buying or selling assets.

In some situations, the capital is never actually drawn. Before settlement occurs, a bank may become comfortable with the transaction, an asset may be sold, additional equity may be introduced, or the overall position may improve. But having the funding available helped create the outcome.

Interestingly, these situations often create the greatest optionality. Having funding certainty in place can improve negotiating leverage, but it can also provide time for a traditional bank approval process to catch up. As a result, some transactions ultimately settle with main bank funding despite initially being presented as non-bank opportunities

"We know we can generate strong returns from additional capital"

Many successful farming businesses understand that return on equity can be significantly enhanced when additional capital is deployed into the right opportunities.

Whether that involves acquiring strategic land, developing infrastructure, expanding scale, or investing through a separate acquisition vehicle, the economics can be compelling.

In some situations, the cost of transitional capital is considerably less than either missing the opportunity altogether or introducing external equity into the business.

The objective is not permanent leverage. The objective is to create value, strengthen earnings, and ultimately refinance back to a lower cost main bank facility once the strategy has been executed.

"We're a first farm buyer and we’re close – we just need a little more"

Another emerging theme is first farm buyers or next generation operators who are very close to making a transaction work but fall slightly short of bank requirements.

Often these are high quality businesses with strong cashflow generation and clear debt reduction capability. The challenge is simply that the initial leverage level sits above what a bank is prepared to support from day one.

Transitional capital can help bridge that gap. With strong operating performance, principal reduction, and a proven ownership track record over the following few years, these borrowers can often create a clear pathway back to traditional bank funding far sooner than many people might expect.

A common theme

While the situations vary, they all have one thing in common. They are less about financial stress and more about strategic timing.

The businesses involved are often profitable, well managed, and highly capable. What they require is the flexibility to act when opportunities emerge, rather than waiting for circumstances to become perfect.

In almost every case, the long term objective remains the same - creating a pathway toward the most appropriate long term funding structure once the opportunity has been secured and the strategy has had time to play out.

In our next article, we'll look at a different category of enquiry entirely.

These are situations where good businesses don't necessarily need more capital to pursue growth, but instead need additional time to execute a recovery, complete a transition, realise asset value, or reposition themselves back toward traditional banking structures.

In many cases, they are not businesses that need rescuing. They simply need runway.

Let's Start With a Conversation

If any of these examples sound familiar, it is worth having a conversation early.

You do not need to know exactly what the right funding answer is before you call us. In some cases, the best pathway may still be a main bank solution. In others, transitional capital may help create the time, certainty, or flexibility needed to move forward.

Either way, the starting point is simply understanding the strategy, the people involved, and the pathway available.

If you have an opportunity in front of you, email us back or contact one of our NZ wide Client Directors here.

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NZAB, 335 Lincoln Road, Addington, Christchurch, New Zealand 8024, 0800 NZAB 12

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