Monday Market Minute | Jan 27, 2020

Private credit pipeline surges as bank lending standards tighten across Canada

What Moved

Canadian private credit managers reported an unusually strong start to the year, with deal pipelines running well above 2019 levels. OSFI's continued enforcement of Guideline B-20 and tightened commercial lending standards at the Big Six banks pushed mid-market borrowers toward alternative lenders. Mortgage investment corporations across Ontario and British Columbia reported record application volumes in January, particularly for bridge financing and construction loans. Several prominent private debt funds, including Romspen and Ninepoint, communicated strong deployment expectations for Q1.

Why It Matters

The structural shift of lending activity from regulated banks to private lenders was accelerating. For investors in MICs and private credit funds, this translated to better deal selection and the ability to maintain yield spreads. However, the expanding opportunity set also meant heightened underwriting scrutiny was essential — more deal flow without proportional growth in credit teams could lead to adverse selection.

Signal to Watch

Monitor delinquency rates in the MIC sector. A stable or declining trend through Q1 would validate that the expanded pipeline was not coming at the cost of credit quality.

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