LEEFF program remains untouched by big business

Interesting points about Ottawa's conditions for making loans under this program, including spending no-nos, environmental tie-ins, and government acquisition of equity--not the "favourable rates and conditions" (in the words of one commenter) that corporate capitalism wants, I guess. Where will Trudeau and Morneau go on this? -  Gene McGuckin

Minister of Finance Bill Morneau and Bank of Canada governor Stephen Poloz give an update on financial measures to help Canadians with the effects of COVID-19 pandemic in Ottawa on Mar. 18, 2020. Andrew Meade/iPolitics

Jun 16, 2020

Almost a month after the application process first opened, the federal program offering emergency loans to big businesses has not green-lit any applications.

Finance Canada spokesperson Anna Arneson told iPolitics on Monday that no applications have yet been approved for the Large Employer Emergency Financing Facility (LEEFF), a program that first opened up to requests on May 20.

The Liberal government had pitched the LEEFF as a lender of last resort for large companies needing liquidity exceeding $60 million to bridge the COVID-19 economic crisis and prevent layoffs. Access to loans came with a web of strings attached, including financial and environmental reporting requirements and a $1-million cap on executive pay. 

READ MORE: Ottawa creates aid program for large firms, with ‘strict’ conditions to apply

The program is available to companies of all sectors, but Finance Minister Bill Morneau has previously pointed to firms in the oil and gas sector, airlines such as Air Canada and WestJet and large airports as organizations it could help.

“It’ll be available to…organizations like airports that have extreme challenges,” he said during a press conference on May 20.

However, Daniel-Robert Gooch, president of the Canadian Airports Council, said none of the four airports in Canada with revenues exceeding $300 million, a threshold for eligibility, are participating in the program.

“Most of our member airports, including smaller airports, already have access to credit at favourable rates and conditions today so none of the federal lending programs are really very helpful,” he said.

Gooch said passenger traffic and revenues are down more than 90 per cent compared to pre-pandemic levels at most airports. He said the debt they have been forced to take on is not sustainable and without any additional government support “many airports will have no choice but to follow the lead of NAV Canada and the Winnipeg Airport in raising rates and charges.”

Brian Kingston, vice-president of international and fiscal policy at the Business Council of Canada (BCC), which represents Canada’s largest firms, said he’s not surprised that no companies are receiving financing from the LEEFF. He has yet to hear of any Canadian company that has applied.

“It appears that the conditions they put on this program are too stringent to the point where no one’s even going to use it,” Kingston said.

He said ahead of the LEEFF’s unveiling, businesses asked Ottawa for a liquidity support program that had to be “fast, fluid and flexible.” Kingston said the program lacks clarity over certain requirements, such as how companies would help meet Canada’s climate goals, but there is no government framework for how companies can account for climate impacts.

“The sign of a successful program should be that it’s well-designed, companies are applying, they’re being approved, and ultimately, more Canadians are staying employed as a result,” Kingston said. “It doesn’t look like that’s happening at this point. So I think there definitely needs to be some reflection on the design of the program.”

Ben Brunnen, vice-president of fiscal and economic policy at the Canadian Association of Petroleum Producers, said he is not aware of any oil and gas companies that have applied but it’s good Ottawa has offered a backstop for desperate firms nearing collapse.

Brunnen said banks have provided $10 billion in incremental liquidity to sufficiently help the industry since the pandemic began, largely from their existing commercial lenders. If any companies in his sector are to apply, he said it would likely be towards the end of 2020 or in 2021 based on if the economic situation does not improve.

“The real test of the effectiveness of LEEFF is whether companies that are through dire financial circumstances actually decide to apply for it or not,” he said.

Lauren Stewart, a spokesperson for WestJet, said the company “continues to review all options to determine our next steps.” Air Canada did not respond to a request for comment.

READ MORE: Large firms can now apply for loans through LEEFF program, exec salaries capped at $1M

The LEEFF program was announced on May 11, and was quickly welcomed by big businesses that had been largely shut out of other federal credit programs more tailored toward small and medium-sized enterprises. “There is no doubt at all about the need,” BCC president and CEO Goldy Hyder said in a statement that day. 

While restrictions on dividend payments, share buybacks and respecting collective bargaining rights were announced May 11, the May 20 release of the program’s full details revealed that the government could reserve the “right to have an observer” on a borrowing company’s board of directors. It was also revealed that Ottawa could receive an ownership stake through the purchase of common shares or cash equivalent as part of a loan deal.

While no credit has yet been approved, Finance Canada has said any application will go through a “thorough review.” Finance Canada declined to comment on whether any companies have applied to date in a response Wednesday morning.

Prime Minister Justin Trudeau has previously said the LEEFF is meant to provide “bridge loans, not bailouts.”

The federal government does not have any estimates as to how much the program would end up costing, according to the latest bi-weekly report tabled on June 10 at the House of Commons finance committee on projected COVID-19-related spending.

To administer the LEEFF program, Ottawa also created a new entity, the Canada Enterprise Emergency Funding Corporation, a subsidiary of the Canada Development Investment Corporation.