The Morning Brief – 05.12.20

By Bruce Carson


Economy—Bridge Financing for Medium Sized Companies

A Bridge in the form of the Large Employer Emergency Financing Facility (LEEFF)

Is There More on the Way?

Yesterday’s announcement was a long time in coming as it was the middle of April when Finance Minister Morneau stated that financial help was on the way for the energy sector in a matter of hours or weeks. Even before that, the energy sector and Premier Kenney of Alberta were calling on Ottawa for help given the dual challenge of COVID-19 with falling demand for oil and the price war between Russia and Saudi Arabia.

What is surprising, is, if this announcement was being planned over weeks, why the scarcity of details? This failing makes it almost impossible at this stage for companies to determine whether the two measures announced yesterday are helpful, or worth the trouble of applying.

Could it be that it took the remarks from Green Party Parliamentary Leader Elizabeth May that “oil is dead” and the comment from Bloc Leader Blanchet that the “tar sands are condemned” to spur on the government to actually make a move on support. In a backhanded way, May and Blanchet may have actually been helpful.

Their remarks were made last Wednesday and on Thursday at his usual morning media briefing Trudeau was asked to comment on what had been said. Given the Trudeau government’s antipathy towards fossil fuels many, must held their collective breath for the answer. It could easily have been. “I agree.”

The answer was “I don’t share that assessment. I know that if we are to move forward in transforming our economy towards lower emissions and cleaner processes, workers and innovators in Alberta and right across this country in every sector are going to be an essential part of that transformation. As we move forward to lower fossil fuel emissions, lower greenhouse gas emissions, we need the innovation, the hard work and the creativity of people working right across the energy sector.”

“We need to support Albertans and other people working right now in the energy sector through this incredibly difficult time, as families, as workers, as communities … We need their capacity to innovate and figure out how we’re going to move forward towards our greater goal. We can’t do it without them and that’s why we’re going to keep supporting them in the right way.”

Trudeau then added on Friday, “we will over the coming days start working at specific sectoral supports for various industries that have been particularly hard hit by COVID-19” But he did add “but even then our focus will be on workers, on supply chains, not on corporate well-being of an industry or a sector.”

As we went into the weekend whatever this new program or programs looked like, it had to strike a balance between environment and financial support. This is what happened with both the orphan wells announcement and the one to reduce methane emissions. The Trudeau government had to be seen as putting the environment and climate change forward as they committed funds to the energy sector.

So yesterday’s announcement arrived with few details but enough to satisfy the Trudeau cabinet and caucus that this announcement wouldn’t cost them seats in Ontario and Quebec, but it also won’t gain them any seats in the west. It’s all about achieving the right balance of energy and environment measures and securing the eleven seats needed to gain a majority.

The announcement yesterday was divided into two parts; measures for companies whose revenues were over $100 million and those whose revenues were over $300 million.

The companies in the $100 million bracket, mid-sized corporations, can get loans up to $60 million and loan guarantees up to $80 million.

Companies, large corporations, can get loans for over $60 million from the federal government provided through the Canada Development Investment Corporation.

The companies applying for over $60 million in loans must satisfy a number of conditions. The ones we know about now deal with restrictions on executive pay, dividends and share buy backs, putting limits on what the money from the government may be used for. The companies must have significant operations or workforce in Canada.

In addition, recipient companies will have to agree to abide by union contracts, pension plans and maintaining a Canadian workforce.

Companies applying cannot have been convicted of tax evasion and also not be engaged in aggressive tax avoidance; whatever that is.  It seems that if there is a hint of tax evasion or avoidance or if the company is on the list of companies being investigated by CRA, then there must be full financial disclosure and advice will be given on these matters or the company will simply not qualify. It was not clear whther the legal use of tax havens would disqualify the applicant. This full financial disclosure may be a deal breaker for some companies, but as the prime minister said yesterday the government is to be a “lender of last resort.”

On the environment front, this is where the balance to satisfy the Liberal caucus is achieved, by requiring disclosure of corporate plans to deal with climate change and “long term environmental sustainability goals.” While most large companies in the energy sector have such plans, the question is by what standard will the plans be judged and deemed acceptable.

If the climate change/environment part of this initiative becomes part of a subjective review, it could be that some companies may have to adopt more aggressive measures to qualify for a loan. On this matter Treasury Board President Duclos spoke of a detailed climate plan, achieving goals in 2030 and 2050 and the government “will demand that they will meet this.”

One issue that remains uncertain is the upset limit on these loans and therefore the cost of these measures. When Treasury Board President Duclos was questioned last evening by Vassy Kapelos about the size of the program he was non-committal, saying only because of the conditions on the loans that the uptake would be “modest.” When it was suggested to him that “there must be a number that the government is working with,” the answer from Duclos was “we’ll see.”

At some point, perhaps today, the government should at least disclose how much the program will cost taxpayers and perhaps how many jobs it will save. There seemed to be a commitment to transparency regarding the loans and the conditions attached, perhaps providing all the details of the program soonest would be a good start towards transparency.

Jesse Snyder of the Post chain, writing about this initiative late yesterday quoted the Alberta finance minister who was generally supportive, as saying that he “would have been happy if this announcement was made a month ago.”

It seems the Canadian Association of Petroleum Producers although noting the lack of detail seemed generally supportive as well. The airline industry is concerned that most airlines won’t qualify as they do not have revenues of more than $300 million. Also Dennis Darby, head of the Canadian Manufacturers and Exporters Association was not pleased as he had hoped for non-repayable measures that would help with cash flow. His members don’t want to be in the position of assuming more debt.

The object of this exercise is to keep employers in business so they can provide jobs as the economy recovers. The lesson that employees need employers to create jobs seems to have been learned.

But this is a far cry from the $20 billion liquidity backstop, targeted solely at the energy sector that Premier Kenney has talked about for weeks.

Is there more coming, in the form of energy sector specific measures; doubtful.

To Come

  • Virtual sitting of the House of Commons
May 13
  • Face to face meeting of the House of Commons
May 14
  • Virtual signing of the Wet’suwet’en agreement with B.C. and Canada
  • Bank of Canada releases its Financial Systems Review
May 20
  • Wholesale trade numbers for March to be released
  • CPI numbers for April to be released
May 22
  • Retail trade numbers for March to be released