Monday Market Minute | Feb 01, 2021

Private credit origination surges as traditional lenders remain cautious

What Moved

Canadian private credit origination volumes accelerated sharply into February. Major non-bank lenders including Romspen, Firm Capital, and several mid-market MICs reported pipelines at or near capacity. The dynamic was straightforward: Schedule I banks, still operating under tightened post-COVID underwriting standards, were passing on deals that met private lender criteria. Developers racing to capitalize on the housing boom needed faster capital deployment than traditional channels could provide.

Why It Matters

For investors in private credit funds and MICs, this origination surge was a double-edged sword. Deal flow was abundant, and yield spreads remained attractive at 7-10% for first-mortgage positions. But volume-driven environments have historically been where underwriting discipline erodes. The question for allocators was whether fund managers were maintaining standards or stretching to deploy record capital inflows.

Signal to Watch

Loan-to-value ratios on new originations were the key metric. Any systematic drift above 75% LTV on development-stage loans would signal that the competitive pressure to deploy was overriding prudent risk management.

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