Counsel: May 11, 2020: COVID-19 Update Government of Canada actions on COVID-19

COVID-19 Update

Government of Canada actions on COVID-19

May 11, 2020

Good afternoon,

The federal government announced two new major economic programs today to provide liquidity to medium and large businesses that are struggling due to the pandemic. In summary:

The federal government is creating the Large Employer Emergency Financing Facility (LEEFF) in order to provide bridge financing to firms who were successful ahead of the crisis, but have been severely affected since its onset. This program is designed to provide liquidity so that businesses across all sectors can remain functioning throughout the crisis and be positioned to take advantage of the eventual economic recovery. This is the sectoral support that the government has been hinting at for the past days and weeks. Here are the details:

Eligibility for this program applies to for-profit companies seeking more than $60 million in financing with revenues higher than $300 million, who have “significant” operations or workforce in Canada, and who are not involved in active insolvency proceedings. Companies in the financial services sector are not eligible.

Access to this program will come with a number of strict conditions. Companies will be required to maintain jobs and investment levels. There will also be conditions around reporting on recipients’ environmental practices and plans to help reach national climate goals, while collective agreements, including pensions, must be respected.

The government will be placing limits on executive compensation, dividends and stock buybacks. Companies with a history of tax evasion or tax avoidance will not qualify for financing. Firms will need to provide a disclosure of their financial structure when they apply.

The LEEFF will not be available to firms who were facing insolvency ahead of the COVID-19 crisis or who were considered non-viable. The financing will be made available on commercial terms which are consistent across all sectors. These are expected to be made public in the coming days.
The program will be administered by the Canada Development Investment Corporation (CDEV), Innovation, Science and Economic Development Canada (ISED) and Finance Canada. CDEV is a crown corporation originally set up to manage the federal stake in the Hibernia oil and gas field project and was more recently used to purchase the Trans Mountain Pipeline System. ISED will have the lead on determining eligibility.

The Prime Minister said this financing is being made available in circumstances where private sector loans are not available. He said “these are bridge loans, not bailouts.” The goal of the program is to avoid bankruptcies, not to provide low-cost lending to companies that don’t need it.

The government is also expanding the Business Credit Availability Program (BCAP) to provide mid-sized companies with loans up to $60 million and guarantees up to $80 million.

The government says that the expanded BCAP will “allow mid-market companies to leverage the Crown’s mandate for support, as well as their expertise and relationships with the country’s financial institutions, in order to access the best complementary solutions that address their financing gaps.”