Monday Market Minute | Aug 24, 2020
Canadian private credit realized loss rates remain near historic lows through mid-2020, dramatically outperforming stress-case scenarios modelled during the March crisis.
What Moved
As mid-year reporting data accumulated, a remarkable picture emerged across Canadian private credit: realized losses were barely above pre-pandemic norms. Major private debt managers reported impairment rates well within historical ranges. The feared wave of defaults had not materialized. The explanation was multi-faceted — government income support backstopped borrower capacity, low rates reduced debt service burdens, rising property values protected collateral positions, and deferral programs gave stressed borrowers time to recover. Ninepoint's private credit strategies reported Q2 results ahead of revised expectations.
Why It Matters
The resilience of private credit through the worst economic shock in a generation was a powerful data point for the asset class. It demonstrated that well-underwritten private credit, backed by tangible collateral and covenant protections, provided genuine downside resilience — not just in marketing materials but in actual crisis performance. For investors who had been considering private credit allocation, the 2020 experience provided live stress-test evidence that the asset class performed as advertised during periods of extreme duress.
Signal to Watch
Watch for changes in fund-level leverage. If private credit managers increased portfolio leverage in pursuit of higher returns during the recovery, it would erode the conservative positioning that had protected portfolios through the crisis.