Alternative lenders halt redemptions, signaling mortgage cracks
One of Canada’s largest private lenders is freezing redemptions.
Bridging Finance Inc. said in an letter to investors Monday that it has gated its funds indefinitely “to maintain investor value and limit pandemic effects.”
The non-bank lender has $1.6 billion in assets under management with the most of its direct lending funds invested in collateral-based bridging loans, inventory and accounts-receivables financing.
Request for redemptions spiked to about 15 per cent of the assets from the usual 5 per cent, which prompted the gating, Chief Executive Officer David Sharpe said by phone. The news was first reported by the Globe and Mail newspaper.
“If Bridging were to press existing borrowers out of the portfolio in order to satisfy unusual redemptions in the funds, the effect would be to cut off funding to these businesses during an unprecedented economic emergency,” the firm said in the letter seen by Bloomberg News. It could also result in investors being treated unfairly “if Bridging were to be asked to sell positions at a discount given the lack of a normal market.”
The firm said in the letter that many of its borrowers -- which work in everything from milling flour to delivering groceries, repairing Coast Guard vessels and monitoring train tracks -- are experiencing higher demand for their products as people need more of the basic services they provide.
Last month, Sharpe said said the firm had a surge in calls from companies desperate for loans. He said at the time that his team was speeding up work to accommodate some of the requests for urgent loans ranging from $10 million to $50 million, he said.
Canadian non-bank commercial mortgage lenders also froze redemptions as the underlying assets couldn’t be sold fast enough to keep pace with sustained withdrawals, Bloomberg reported last month.
Vancouver-based Trez Capital gated approximately $2.6 billion. It didn’t say how long the freeze would last to “avoid building unrealistic expectations”.
Some firms such as Morrison Laurier Mortgage Corporation have gone further and also suspended dividends and new purchases last month, according to the people familiar with the matter.