Monday Market Minute | Feb 10, 2025

Private credit emerges as a relative safe haven amid trade volatility

What Moved

While equity markets gyrated on tariff headlines, Canadian private credit funds reported a surge in inbound deal flow. Businesses facing tightened bank lending standards — particularly in sectors with US trade exposure — turned to private lenders for flexibility. Several mid-market private credit managers reported their strongest pipeline openings since early 2023. The asset class's floating-rate structure and shorter duration also attracted institutional allocators seeking insulation from policy whiplash.

Why It Matters

The flight to private credit reflected a structural shift, not just a cyclical one. Canadian banks, constrained by OSFI capital requirements and trade-sector caution, were pulling back from exactly the borrowers that needed capital most. Private credit stepped into the gap with bespoke structures — higher spreads, tighter covenants, and faster execution. For investors, the risk-return profile remained compelling: yields near 9-11% with senior-secured positioning and active portfolio management.

Signal to Watch

OSFI's upcoming guidance on commercial lending concentration limits would signal whether bank retrenchment was temporary or structural — and how much market share private credit could capture.

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