What Moved
The Bank of Canada held at 0.25% on July 14 but took another step toward normalization by further reducing its bond purchases. The evolving rate outlook had meaningful implications for private debt in Canada, particularly for borrowers and lenders positioned at the shorter end of the duration spectrum. The Bank now projected rate hikes beginning in the second half of 2022, pulling the timeline forward from earlier guidance (BoC, Jul 14, 2021).
Sean McCoshen, a major borrower in the Bridging Finance portfolio, filed for bankruptcy in July with approximately $222 million in debt. The filing provided concrete evidence of the concentration risk embedded in Bridging's loan book — a single borrower representing a significant portion of the fund's exposure (Globe and Mail, Jul 2021).
Canadian housing activity continued to moderate from spring peaks but remained elevated by historical standards. Prices were still climbing, though the pace of appreciation had slowed from the frenzy of Q1. The national average remained well above $700,000 (CREA, Jul 2021).
Canadian PE was having one of its most active years in recent memory. Mid-market deal flow was strong, and exit activity was picking up as public market valuations supported IPOs and strategic acquisitions.
What It Means
The McCoshen bankruptcy underscored the dangers of borrower concentration in private credit. Bridging's exposure to a small number of large borrowers violated a basic principle of credit portfolio management: diversification. The lesson for MIC investors was fundamental — ask how concentrated the loan book is. A portfolio of 200 small mortgages is structurally different from a portfolio with a handful of large commercial loans, even if the headline yield is similar.
The BoC's continued march toward normalization was the other key signal. Rate hikes in 2022 were now the base case, and private market investors needed to consider what that meant for their portfolios. For MIC investors with floating-rate loan books, rising rates could actually improve earnings — borrowers pay more, and MIC yields adjust upward. But for borrowers at the margin — those who qualified for loans only at emergency-level rates — higher rates could trigger stress.
PE was the bright spot. Canadian mid-market PE was benefiting from a strong economic recovery, improving corporate earnings, and an active exit environment. For investors with PE fund commitments, the vintage years of 2020 and 2021 were shaping up to be productive.
What We're Watching
Inflation continued to be the variable that would determine the pace of rate normalization. July CPI data would provide another data point. If the upward trend continued, rate hikes could come sooner than the BoC's current 2022 H2 projection.
The Bridging receivership was moving through the courts. PwC's assessment of recovery prospects would provide the first meaningful estimate of investor losses.
Summer housing data would confirm whether the moderation from spring peaks was a healthy normalization or the beginning of a more significant correction.
Closing
July brought further clarity on the Bridging situation and the rate outlook — both pointing in the same direction: the era of easy conditions was approaching its end. For Canadian alternative investments broadly, the message was about preparation. The cycle was maturing, and the time to stress-test portfolios was before rates rose, not after.
For the full quarterly analysis, see Q3 2021: Inflation Stirs.
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