What Moved
The Bank of Canada raised its overnight rate by 75 basis points to 3.25% on September 7. Total tightening since March was now 300 basis points — three full percentage points in six months — and private lending distress was becoming increasingly visible across the sector. The Bank signaled that further increases were likely needed to bring inflation sustainably back to target (BoC, Sep 7, 2022).
Ninepoint's proposed fund restructuring was approved by unitholders in September. The funds were split into a continuation vehicle and a liquidation vehicle, giving investors a choice. The restructuring provided a resolution framework, though recovery values remained uncertain (Ninepoint, Sep 2022).
Gary Ng, a financial advisor connected to the Bridging Finance case, was banned from the capital markets by the OSC and fined $5 million for his role in directing investor capital to Bridging products (OSC, Sep 2022).
Housing prices continued to decline. Toronto's average was now down roughly $400,000 from the February peak — a staggering decline in just seven months. Nationally, the correction was broad-based (CREA, Sep 2022; TRREB, Sep 2022).
What It Means
At 3.25%, the overnight rate was higher than at any point since 2008, and the pace of the increase was without precedent. The private credit sector was now operating in an environment fundamentally different from the one in which most of its current loan books had been originated.
The Ninepoint resolution was a significant development. While the outcomes for investors were still uncertain, the structured approach — giving unitholders a choice and providing a clear timeline — was preferable to an indefinite freeze. It established a template for how other private credit stress situations might be resolved.
For the broader MIC sector, the sorting process was accelerating. Managers with conservative loan books, strong borrower quality, and adequate reserves were weathering the storm. Others — those that had stretched on LTV ratios, concentrated in speculative projects, or failed to build reserves during the boom — were under increasing pressure. In the world of alternative investments in Canada, the quality gap between disciplined and aggressive managers was becoming starkly apparent.
The $400,000 price decline in Toronto was historic. For private lenders with loans originated at February 2022 prices, the collateral cushion was being tested in real time. A loan originated at 75% LTV on a $1.33 million property was secured by collateral now worth approximately $930,000 — an effective LTV above 100%. Conservative managers who had capped LTV at 65% still had adequate protection.
What We're Watching
The October BoC decision was expected to bring another 50bp hike. Markets were beginning to debate the terminal rate — the level at which the BoC would stop hiking. Estimates ranged from 3.75% to 4.50%.
MIC distribution data for Q3 would be the clearest indicator yet of how the tightening cycle was affecting investor returns.
The Bridging receivership continued to unfold, with PwC's updated assessments expected to provide more clarity on investor recovery prospects. The case remained a sobering reminder that fraud risk exists alongside market risk, and that regulatory oversight in the exempt market space remained a work in progress.
For those considering new allocations, the repricing of private credit was creating a window that was historically unusual. New loans being originated at 300 basis points above where they would have been priced a year earlier, on collateral that had already corrected significantly, represented a fundamentally different risk proposition than the same strategies offered in 2021.
Closing
September brought resolution for Ninepoint investors and continued pressure for everyone else. The tightening cycle was doing its job — cooling housing, taming inflation, and sorting the private credit sector. For alternative investors, the message was about patience: the transition was painful but temporary, and the foundations for a healthier market were being built.
For the full quarterly analysis, see Q3 2022: The Correction Accelerates.
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