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Canada providing conditional bridge loans to large employers

Monday, May 11, 2020 @ 3:52 PM | By Terry Davidson

Canada’s government is offering to be a “lender of last resort” to big businesses to help them keep their workers employed during the COVID-19 crisis — but “significant conditions” will be attached to the funding.

On May 11, Prime Minister Justin Trudeau announced the launch of the Large Employer Emergency Financing Facility (LEEFF), an initiative that will see the government provide bridge financing to large employers not able to get enough through other means, such as private lenders.

The program will be available to large, for-profit businesses (save for those in the financial sector) and certain not-for-profits — such as airports — with annual revenues “generally in the order of $300 million or higher,” according to a federal government news release.

The objective is to protect Canadian jobs, said Trudeau.

“But let me be clear, these are bridge loans, not bailouts,” he said. “Just as we are finding ways to support small and medium-sized businesses, we will provide loans to the largest enterprises to help them weather the storm and protect the millions of jobs they provide across Canada.”

Trudeau said his government would be “guided by several basic principles.”

“The first is to avoid bankruptcies. Our purpose is to keep large Canadian companies on their feet and protect the … jobs they provide. The goal here is not to fix pre-existing insolvencies or restructurings, nor is it to provide low-cost lending to companies that don’t need it. Second, we will be fair. Financing will be accessible to every industry sector in a way that is consistent in every province and territory right across Canada. And, critically, we will protect workers and hold companies accountable. … Any company that receives this support will be expected to make and keep certain commitments.”

Trudeau said they will have to maintain jobs and investments, as well face strict limits on dividends, share buybacks and executive pay. They will also have to respect collective bargaining agreements and protect worker pensions.

According to the news release, consideration for eligibility could include an “assessment … of [a company’s] employment, tax, and economic activity in Canada, as well as its international organization structure and financing arrangements.”   

The program will not be available to companies that have been convicted of tax evasion. 

Also, those receiving funding would have to “publish annual climate-related disclosure reports … including how their future operations will support environmental sustainability and national climate goals.”

Businesses must be seeking “about $60 million or more, have significant operations or workforce in Canada, and not be involved in active insolvency proceedings.”

Trudeau was asked about whether oil and gas companies will be able to meet the LEEFF’s environmental requirements, given their contribution to the carbon footprint.

“We have seen many oil and gas companies make commitments … around understanding that we need to do better in terms of reducing emissions both in terms of a country and as a sector, that is why we are expecting them to put forward a frame within which they will demonstrate their commitments to reducing emissions and fighting climate change.”

Trudeau was asked if he thought the government was taking on too much risk, given the current unpredictability of the pandemic.

“I think the significant risk is that we see long-term damage to the Canadian economy, that we see significant, large companies that employ millions of Canadians … stop functioning because of this pandemic. … We need to make sure that we are supporting these employers so Canadians can continue to have jobs once we bounce back from this pandemic. Of course, we would much prefer that people look onto the private credit markets to get the loans and the bridge financing they need, but we will be there as a lender of last resort, to ensure that those companies do continue to employ the Canadians … who depend on those jobs. But there will be significant conditions around that, as well.”

The Conservative Party of Canada was quick to criticize the LEEFF.

“The policy only restricts, but does not ban, bailed-out companies from share buybacks, bonuses and dividends,” said Conservative Finance critic Pierre Poilievre. “That means the wealthy shareholders and executives could profit from taxpayer money that was supposed to save jobs. There are also no job guarantees in exchange for the money. The supposed purpose of having taxpayers rescue companies is to protect jobs. Yet there is nothing in this policy to stop businesses from taking the money and dropping the workers.”

Conservative Industry and Economic Development critic Michelle Rempel Garner said that the “Trudeau Liberals have once again let down Canadian workers, businesses and taxpayers.”  

“Nothing announced today provides the clarity that businesses and workers have been looking for. There are no clear timelines, no clear eligibility criteria, no job guarantees, no budget, no transparency and no safeguards to protect taxpayers.”