Canada lends $500 billion to a private credit boom it never joined at home
The report also flagged weaker debt-servicing capacity among riskier private firms on floating-rate debt, and noted that some non-traded business development companies capped redemptions after requests jumped.
Private credit borrowers typically carry lower credit quality and higher leverage than borrowers in comparable public markets, the Financial Stability Board said in its May report, pointing to rising payment-in-kind use and default rates edging up from low levels.
Private placements had grown to about 20 percent of American life insurers’ bond portfolios by 2022, Bloomberg reported, citing industry data drawing on Federal Reserve estimates, close to the 22 percent of invested assets the Bank of Canada attributes to Canada’s three largest life insurers.
A sharp downturn in private credit abroad could still reach Canadian investors and domestic business lending, the Bank of Canada said, and assessing that risk is difficult because “transparency is limited, leverage can be difficult to measure,” the authors wrote.
