Monday Market Minute | Sep 18, 2023

Private credit deal pipelines hit record levels as bank retrenchment deepens

What Moved

Canadian private credit managers reported that deal pipelines entering Q4 were the deepest in their histories. The BoC's Senior Loan Officer Survey confirmed continued tightening across virtually all commercial lending categories, with CRE, construction, and leveraged finance most affected. The Big Six banks were not in distress — their balance sheets remained robust — but post-SVB risk aversion, OSFI capital requirements, and internal risk appetite reductions had created a structural contraction in bank-originated credit. The gap was being filled, deal by deal, by private capital.

Why It Matters

The bank-to-private credit migration represented a potentially permanent shift in Canadian lending markets, not merely a cyclical adjustment. Borrowers who discovered that private lenders could offer speed, certainty, and flexibility — albeit at a premium — were unlikely to return to the bank channel even when conditions normalized. For investors, the expanding addressable market meant private credit was no longer a niche allocation — it was becoming a core portfolio position, analogous to what had occurred in the U.S. market over the prior decade.

Signal to Watch

Whether Canadian pension funds — CPPIB, OTPP, CDPQ, and OMERS — would increase their domestic private credit allocations, which had historically skewed heavily toward U.S. and European markets.

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