Monday Market Minute | Feb 14, 2022

Private credit managers position for the rate-hike windfall as floating-rate books become the trade of the year

What Moved

With the BoC's March rate hike virtually certain, Canadian private credit managers were actively marketing the structural advantage of floating-rate loan portfolios. Firms like Sagard, Third Eye Capital, and smaller exempt-market lenders highlighted that every 25-basis-point hike would flow directly to investor yields — a mechanical advantage that public fixed-income couldn't match. New fund launches tilted heavily toward floating-rate structures, and capital inflows into private credit vehicles accelerated.

Why It Matters

The case for private credit was becoming almost reflexive: rising rates lifted yields without requiring new underwriting, existing borrowers remained current (the economy was still strong), and bank retrenchment from riskier lending opened wider spreads. For HNW investors, the asset class offered a rare alignment of income, inflation protection, and capital preservation — provided credit quality held as rates climbed.

Signal to Watch

Borrower debt-service coverage ratios — the critical question was whether corporate and real estate borrowers could absorb 200-300 basis points of rate increases without triggering defaults.

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