Canada unveiled a loan program for large firms that have been hit by Covid-19 and can’t get financing by conventional means.
The Large Employer Emergency Financing Facility is for companies and non-profit organizations with annual revenue of C$300 million ($214 million) or more.
Firms in all sectors can apply for the funding except the finance industry. Companies that receive money will have to accept limits on executive pay, dividends and share buybacks.
"We need to make sure that we are supporting these employers so that Canadians can continue to have jobs once we bounce back from this pandemic," Prime Minister Justin Trudeau said at an Ottawa press conference, adding "these are bridge loans, not bailouts."
The lending facility aims to stop bankruptcies of otherwise viable firms and protect the Canadian economy, Trudeau told reporters. It isn’t intended to bail out companies that were already in financial trouble before the pandemic.
"We are trying to make sure that we help all sectors across the economy that are facing a challenge because of the Covid-19 crisis," Finance Minister Bill Morneau said at an earlier press conference in Toronto.
‘Appropriate’ Conditions
Companies accessing the fund, including those in the oil and gas sector, will be required to publish financial disclosures annually on climate change and how their business fits in with the government’s environmental objectives.
The lending facility is a welcome development, but the government still needs to provide industry-specific bailouts, and it will need to be very clear about the requirements, especially in terms of the sustainability goals, said Perrin Beatty, chief executive officer at the Canadian Chamber of Commerce.
"There are some sectors which are particularly hard hit: energy, airlines, entertainment, tourism, travel and so on," Beatty said in a phone interview. "Those sectors are going to be under high pressure, serious pressure from the impacts of the disease. They were among the first to go into the recession and they’ll be among the last to go out of it."
Of 1.1 million Canadian businesses, at least 3,000 have annual revenue of more than C$300 million, according to Trevin Stratton, chief economist at the chamber.
WestJet Airlines Ltd. is reviewing details of the program, and in the meantime, "we continue to do everything we can to mitigate the impacts on our operations and the critical investments we make that are essential to Canadian communities," Morgan Bell, a spokeswoman for the Calgary-based company, said in an email.
‘Tight Market’ for Credit
Goldy Hyder, CEO at the Business Council of Canada, said it was the right move for the government to boost liquidity as there are limitations to how much private lenders can provide large companies.
"It’s still a tight market out there," Hyder said in a phone interview. "It’s not like the money is being thrown out of helicopters for you by the private sector."
While it’s "fair game" for conditions to be placed on receiving funds, the government shouldn’t be "overly prescriptive or overly active" in a company’s independent operations or the market, Hyder said.
Alberta Finance Minister Travis Toews said that combined with earlier measures to help small and mid-sized companies, the new program should meet the need for C$20 billion to C$30 billion in liquidity the energy industry and government had been seeking.
"There are a number of details we’re waiting for, but at this point in time, this looks to be consistent with the program we’ve advocated for," Toews said in response to reporters’ questions.
Canadian Association of Petroleum Producers President Tim McMillan said in an interview that the industry was grateful for the measures and said he didn’t object to the climate reporting requirements. The Canadian energy industry is “well ahead” of most other industries in releasing such data, he said.
Keith Stewart, Greenpeace Canada’s senior energy strategist, supported the restrictions on companies. "It makes sense that companies seeking public support agree to limit dividends and executive pay, forgo tax havens and start aligning their business model with Canada’s climate change targets," Stewart said by email.
Trudeau’s government also announced the expansion of an earlier plan, the Business Credit Availability Program, for mid-sized companies which will now provide loans of as much as C$60 million and guarantees of as much as C$80 million.
(Published by Bloomberg, May 12, 2020)
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