By Jolson Lim, iPolitics
Big businesses can now apply for federal loans under a new program meant to stave off bankruptcies, Finance Minister Bill Morneau announced Wednesday.
Morneau offered new details on the Large Employers Emergency Financing Facility (LEEFF), which provides a last resort line of credit for firms with more than $300 million in annual revenues and requesting more than $60 million in loans. Companies can apply through the Canada Enterprise Emergency Funding Corporation, a subsidiary of the Canada Development Investment Corporation.
The LEEFF will offer loans for the next 12 months, with the size of each loan based on a case-by-case basis dependent on the firms’ needs. A minimum loan under LEEFF is $60 million and there is no ceiling on a maximum amount.
Morneau said 20 per cent of the aggregate value of loans will be “senior debt” secured through existing lenders, with the remaining 80 per cent being unsecured loans with a 5-per-cent interest rate in the first year that rises to 8 per cent in second year. The rate rises 2 per cent each year after with repayment on the unsecured portion required within five years.
Borrowing publicly traded companies must also issue stock warrants that allows Ottawa to receive an ownership stake through the purchase of common shares or cash equivalents — a measure Morneau said would see Canadian taxpayers share upside if companies perform well in the recovery.
Details state that the borrower “must issue warrants with the option to purchase the borrower’s (or parent public company’s) common shares totalling 15 per cent of the principal amount or receive cash consideration equivalent to the value of the warrants.” Companies not publicly-traded will have comparable fees, Morneau said.
“These terms ensure that this financing facility provides financing to bridge through this difficult time, but not bailouts,” he reiterated on Wednesday.
Morneau said unlike the multibillion-dollar loans Ottawa provided to General Motors and Chrysler during the late 2000s recession — companies that had already declared bankruptcy — the LEEFF is intended to prevent bankruptcies. In a controversial move, part of the loan provided to Chrysler and its accrued interest all totalling more than $1 billion in taxpayer money was written off in 2018.
As previously announced when the program was revealed last week, companies will also be required to demonstrate how they will protect jobs and maintain their investment activities in Canada.
There will also be some requirements for borrowing companies to not raise executive pay and to provide disclosures on their financial structure and plans to deal with climate change risks and efforts to improve their environmental sustainability. Companies will be limited on dividend payouts and share repurchases.
A government official later told iPolitics that an executive’s salary for a borrowing company will be capped at $1 million, with any executive currently receiving more than that required to take a pay cut until the loan is paid off.
Morneau also said Wednesday the federal government reserves the “right to have an observer” on borrowing companies’ board of directors. He said exact requirements on companies will be set on a case-by-case basis. It is currently unclear how many businesses will apply or how much the program will cost.
Companies receiving loans through LEEFF can also receive the federal wage subsidy. So far, 23 applications valued at over $5 million have been approved.
Firms convicted of tax evasion also cannot access the program. Asked last week whether any large firms have ever been convicted of tax evasion in Canada, the Canada Revenue Agency declined to offer information citing “confidentiality provisions of the Acts administered by the CRA” that prevent the agency from discussing company information without their written consent.
The CRA referred iPolitics to a list of enforcement notifications for tax-related violations. However, notices found in the list suggest only smaller enterprises have been penalized.
Prime Minister Justin Trudeau also announced on Wednesday that the portal for the Canada Emergency Commercial Rent Assistance program will open May 25.
He also said Ottawa is working on providing help for large retailers, signalling another business assistance program is in the works.
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