Peakhill: Why a 60% Capital Ratio Is Not the Same as Accounting Equity
A 60% capital ratio sounds like a thick equity cushion, but roughly a quarter of it rests on a subordinated shareholder loan that still sits inside liabilities rather than accounting equity. Add an unsecured bond layer and the possibility that bank lines may later move into the partnership, and Peakhill's funding structure is more nuanced than the headline number suggests.
Why This Follow-up Matters
The main article dealt with whether Peakhill can keep growing without losing economic discipline. This follow-up stops one layer earlier and asks a more basic question: what exactly sits inside the capital cushion that underpins the whole story.
A 60% capital ratio sounds like equity. It is not. As of December 31, 2025, the partnership's accounting equity stood at CAD 268.4 million. To get to the 60% ratio, another CAD 91.1 million of subordinated shareholder loan has to be added. Under the Deed of Trust, that is explicit and allowed. Economically, though, it is a different layer: it sits inside liabilities, ranks below other liabilities in liquidation, and is not the same thing as common equity or retained earnings.
This is also not a near-term covenant-stress piece. If anything, the year-end cushion looks wide. The real question is the quality of that cushion: how much of it is true accounting equity, how much is subordinated insider funding, and how the picture would change if bank funding lines that currently sit outside the partnership move inside it.
What The 60% Capital Ratio Actually Contains
For covenant purposes, the Deed of Trust defines equity as the partnership's consolidated nominal equity plus subordinated shareholder loans, principal only. That makes the 60% figure a covenant capital ratio, not a pure accounting-equity ratio.
| Layer | Amount at 31.12.2025 | Share of assets | Economic reading |
|---|---|---|---|
| Accounting equity | CAD 268.360 million | 44.8% | The partnership's real accounting cushion |
| Subordinated shareholder loan | CAD 91.115 million | 15.2% | Insider funding counted in covenant equity but still presented as a liability |
| Bonds and other senior liabilities | CAD 239.452 million | 40.0% | The liability layer that sits ahead of the shareholder loan |
| Total assets | CAD 598.927 million | 100% | The denominator behind the ratio |
The important number is not only the CAD 91.1 million itself, but what it means. Roughly 25.3% of covenant equity rests on the subordinated shareholder loan. So anyone reading 60% and picturing 60% accounting equity is missing the structure. In practice, accounting equity alone is 44.8% of assets, and the rest is a shareholder-funding layer that receives equity treatment only for covenant purposes.
This is not an accounting mistake. It is simply a broader covenant definition. That may be perfectly legitimate for bond documentation, but it is a less clean shorthand for what actually absorbs losses first.
The Shareholder Loan Is Cushion, But It Is Not Common Equity
On September 8, 2025, when the bond issuance closed, the rights in all mortgage loans were transferred into the partnership. In exchange, the partnership issued units and a permanent shareholder loan of CAD 110 million. Note 9 says that the shareholder loan is subordinate to all other liabilities in a liquidation, but otherwise payable on demand, subject to certain financial covenants.
That wording matters. It means the layer sits below the bond, but it is not locked common equity that cannot be taken out. In fact, between September 8 and December 31, 2025, roughly CAD 18.9 million had already been repaid, leaving CAD 91.1 million outstanding. So reading the full 60% as if it were fully permanent capital misses that part of the layer had already started coming down within the first bond year.
There is another detail that sharpens the point. The loan carries no cash interest, but it is not free in the income statement. Because it is interest-free, the partnership booked theoretical financing expense of about CAD 2.487 million using an 8% annual rate. In other words, the accounting itself treats this as a funding layer, not as ordinary equity.
The implication runs both ways. On one hand, the shareholder loan improves the covenant ratio and pushes Peakhill farther away from the thresholds. On the other hand, it is still subordinated debt, it was already partly repaid, and its economic cost shows up in earnings. So it should not be read like ordinary equity even if the covenant package counts it that way.
The Bond Is The Visible Debt Layer Today, But The Balance Sheet May Not Stay This Clean
Series A was first issued on September 8, 2025, with NIS 563.451 million principal outstanding. It carries a fixed 6.34% coupon, semi-annual interest payments, and principal amortization in 2029 to 2031 on a 25%, 25%, and 50% schedule. Note 8 adds the key ranking language: these notes are general unsecured obligations of the partnership, senior to debt expressly subordinated to them, pari passu with other unsecured unsubordinated debt, and junior to secured debt.
So at year-end 2025 the issuer-level stack still looks relatively simple: an unsecured bond layer and, beneath it, a subordinated shareholder loan. But that simplicity only holds if one keeps looking at the partnership on a narrow standalone basis.
The reason is that the group's bank funding lines currently sit outside the partnership, at Peakhill Capital Inc. Those three lines total CAD 170 million, of which CAD 114.6 million was drawn as of December 31, 2025. The annual report stresses that they are not recorded on the partnership balance sheet, that they are non-recourse to the partnership and the bondholders, and that they are not intended to service the partnership's obligations to Series A holders.
For bondholders, that is actually a comforting point today, because the bank debt still sits outside the issuer. But the same section then adds the sentence that matters much more: Peakhill Capital Inc. is examining a consolidation of the three facilities into one CAD 275 million line, and such facilities may be borrowed through the partnership and recorded in its financial statements.
That is the real structural trigger. If that happens, the question will no longer be only what the ratio is, but also which additional funding layer moved into the issuer, at what scale, and how that changes the reading of the unsecured bond. As of year-end 2025 it still had not happened. But once management itself flags the possibility, a clean "60% capital" reading is no longer enough on its own.
| Test | Distribution threshold | Breach threshold | Rate step-up threshold | Actual at 31.12.2025 |
|---|---|---|---|---|
| Covenant equity | CAD 240 million | CAD 200 million | CAD 220 million | CAD 359.475 million |
| Equity-to-assets ratio | 30% | 27.5% | 28% | 60.0% |
| Interest coverage ratio | n.a. | 1.25 | n.a. | 4.89 |
That table makes the right point: there is no immediate covenant squeeze here. The margin is wide. So this follow-up is not a breach warning. It is a quality-of-cushion analysis.
January 2026 Enlarged The Bond Layer, Not The Definition
The January 13, 2026 shelf offering report opened the door to a Series A expansion of up to NIS 354.825 million principal, but the partnership stated in advance that it would not issue more than NIS 300 million principal. One day later, the issuance results report showed that the expansion was completed in full: 47 orders from qualified investors under early commitments, no public orders, a uniform price of NIS 1,034 per unit, and gross proceeds of NIS 310.2 million. The partnership also clarified that the issuance was not done at a discount.
The shelf offering report says the proceeds are to be used for the partnership's ongoing business activity or as otherwise determined by the board. Note 11 adds that, after fees and issuance expenses, the partnership received about CAD 133.2 million net, and that on January 15, 2026 it entered into new foreign-exchange forwards to hedge the expansion.
There is also a small but important forensic point. The bondholder disclosure page in the annual report shows nominal value outstanding at the report date of NIS 863.451 million, and the immediate results report also supports that number arithmetically because it adds NIS 300 million to NIS 563.451 million. By contrast, Note 11 says that after the expansion total series principal stood at NIS 836.451 million. That is an internal inconsistency inside the local evidence set. It does not change the structural conclusion, which is that the same unsecured series was expanded materially in January 2026, but it does show why a capital-structure story still needs line-by-line verification.
The hedge also matters, but only in one sense. The debt is in shekels, the functional currency is CAD, and by year-end 2025 the derivative financial asset on the forward contracts already stood at CAD 7.646 million. That reduces FX noise. It does not change the order of claims inside the stack.
Conclusion
This continuation is not saying that Peakhill is overlevered or close to breaching covenants. At the December 2025 snapshot, the opposite is true: covenant equity is high, the capital ratio is wide, and interest coverage still looks comfortable. The January 2026 expansion also shows that the partnership had practical access to the bond market.
But the 60% number is too flattering as a shorthand. It combines CAD 268.4 million of accounting equity with CAD 91.1 million of subordinated shareholder funding, and then sits above an unsecured bond layer that grew again after year-end. As long as the bank lines remain outside the partnership, that reading is still manageable. If they move inside, the same single ratio could describe a very different protection stack.
So the key question is not whether Peakhill has a cushion. It does. The key question is what the cushion is made of, and how permanent it remains as the partnership keeps growing. For a non-bank lender, that can matter more than the headline ratio itself.
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