DBRS Morningstar Publishes “Leveraged Lending in Canada: Riskier but Manageable” Commentary

DBRS Limited (DBRS Morningstar) published a commentary titled “Leveraged Lending in Canada: Riskier but Manageable,” which analyzes the leveraged lending origination environment in Canada following the 2008 financial crisis as the low interest rate period generated increased demand for higher-yielding investment products.

-- Leveraged lending volumes in Canada have grown almost five-fold since 2008, but still total only $56 billion in 2018.
-- Increasingly, new leveraged loans are used for refinancing, with the majority of loans related to the energy and mining sectors.
-- Given the size of the market in Canada, in DBRS Morningstar’s view, leveraged loans do not pose a major risk, but they could exacerbate the impact of a downturn.

“Leveraged lending has grown over the last decade, as a benign credit environment has combined with low interest rates and investors’ search for yield. Although this lending has become more prevalent in Canada, the absolute level remains relatively small and is concentrated in a few sectors,” said Maria-Gabriella Khoury, Senior Vice President. “In DBRS Morningstar’s opinion, leveraged loans do not pose a major risk for the Canadian financial system, but could exacerbate the impact of any downturn.”

Notes:
A copy of this commentary is available by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com.

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