Canada’s Ninepoint Halts Cash Payouts on Three Credit Funds

(Bloomberg) — Canadian investment manager Ninepoint Partners LP is temporarily suspending cash distributions in three of its private credit funds, making it the latest lender to put a squeeze on investors to cope with a liquidity crunch.

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Unitholders of funds with about C$2 billion ($1.5 billion) of assets won’t be able to receive cash payouts, Toronto-based Ninepoint confirmed after inquiries from Bloomberg News. The firm will revisit its decision in the third quarter.

“After reviewing our various liquidity options, Ninepoint Partners and our subadvisors have determined that the best path forward to preserve liquidity and balance the long-term goals of these three affected funds is to redirect future distribution into additional units rather than cash distributions starting July 1,” an outside spokesperson for the firm said in an emailed statement.

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The funds are the Ninepoint-TEC Private Credit Fund II, the Ninepoint Alternative Income Fund and the Ninepoint Canadian Senior Debt Fund.

Ninepoint is the latest lender in the $1.7 trillion private credit industry to take measures to preserve cash, which has seen some lenders be flexible with terms. Executives at large banks have been sounding the alarm for weeks, with some worrying that private credit markets may be getting too inflated.

Read More: Private Credit Has Too Much Cash and Not Enough Places to Put It

Earlier this week, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he expects problems to emerge in private credit and warned that “there could be hell to pay.”

“We’re all aware of the risks,” Bill Winters, CEO of Standard Chartered Plc, said at an event last month. “Like always, good things go too far and then correct. And the job of us as banks and the job of you as supervisors is to make sure we don’t get carried out when the tide goes away.”

Other firms, such as Oaktree Capital Management, have had to cut management fees on private credit funds, following increases in problem loans and disappointing earnings, Bloomberg reported.

Ninepoint, which oversees about C$7 billion, is among those firms offering flexible terms to some borrowers, but with higher risks.

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PIK Loans

The largest of the three funds is Ninepoint-TEC, which reported C$1.2 billion on assets at the end of 2023. It makes asset-backed loans to companies that “may have difficulty obtaining financing from other sources” — and some borrowers have the option of using a payment-in-kind structure rather than cash interest payments, according to the fund’s most recent yearly financial statements.

So-called PIK loans allow a company to defer some or all interest payments until the debt matures.

The fund’s largest exposure is to the sustainability sector, comprising about 45%, with the energy sector making up 31%.

The Ninepoint Alternative Income Fund, which manages about C$600 million, has the bulk of its loans to middle-market companies in the US and Canada. It normally targets payouts to investors of 10% to 12% of the average net asset value in a calendar year, according to documents on Ninepoint’s website. But the fund had generated a compound return of 3.7% over the three-year period that ended March 28.

The Ninepoint Senior Canadian Debt Fund, which is advised by Waygar Capital Inc., has lost 12% in the year ended April.

The firm is not winding down these funds, according to its statement. “Investors will continue to have access to the ongoing benefits of being invested in private credit as we remain focused on ensuring the sustained performance and stability of our current portfolio.”

Some real estate funds, including the $10 billion Starwood Real Estate Income Trust, have also taken steps to limit the ability of investors to pull cash out.

In March 2022, Ninepoint temporarily halted redemptions in some of its private credit funds in the fallout from the failure of a different lender, Bridging Finance Inc.

–With assistance from Jennifer Ryan.

(Updates with additional information on the funds and their performance, beginning in the 12th paragraph.)

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