Finance Committee on June 11th, 2009

[Stephen Poloz]

Exporters have access to private sector insurance from a variety of providers. Most of them are European, actually, in base: Atradius, Euler Hermes, Coface. Those companies are present globally and are available to Canadian companies.

We don't actually compete with those companies. Generally what we do is offer a broader range of countries, or buyers. We charge usually a slightly higher price to ensure that we are not competing openly with those companies. And we often engage in reinsurance agreements with them so we actually can buttress their capacity.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Who would Euler be? Who would CIT be? Apparently GMAC is in the market as well. Are these Canadian companies?

[Stephen Poloz]

You're mixing both lenders and insurance companies in the same question. Generally speaking, those are international companies with a strong Canadian presence.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

My understanding--and maybe this is going to be more specific--is that in particular cases where companies are doing export, you're three times the price of, let's say, a Euler or a CIT in terms of just the premiums, and then there's a percentage in terms of the insurance business. I don't want to question what your premium is, because I'm sure you have a cost factor, but I'm just wondering if you have a different cost factor for some businesses versus others and how you determine what the premium rates are. I would imagine your premium rates would be based on risk, and then your percentage would be pretty well the same across the board.

[Stephen Poloz]

There are a lot of questions in there.

Let's put it in a hypothetical situation. The pricing does vary by risk. It depends on what country the foreign buyer is in, how risky things are. It depends on the actual financials of the foreign buyer. We assess the individual foreign buyer to see what risk is being contemplated. The company comes to us with perhaps six foreign buyers spread across various countries, or it could be just one foreign buyer. So the price depends on the bundle of foreign buyers presented to us.

And it's very important that we compare apples to apples. A private insurer may have five buyers that they will accept, and we may have six or seven buyers--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

In this particular case, it's you versus private, and it's a three to one ratio. I'm just wondering if that makes any sense if you're trying to help a Canadian company.

[The Chair, Conservative, James Rajotte]

Very briefly.

[Stephen Poloz]

It's very important to make sure we're comparing apples to apples, because they may have fewer buyers on their list and lower limits. Having a buyer on your list that you allow, for example, only a $2 million limit may not help you as an exporter, when you have many more millions to--

[The Chair, Conservative, James Rajotte]

You'll have a chance for another round, Mr. Pacetti. Thank you.

I'm going to take the next Conservative round.

First of all, gentlemen, thank you very much for coming in and appearing before us and responding to our questions.

I did want to ask about the Canadian secured credit facility. Mr. Pacetti raised the issue of one company, Tricor, and we've certainly heard from a number of organizations and companies. One of the concerns raised is that the triple-A rating is too high. They're saying a double-A rating should be there, because while the offer is being made and the letters are being sent off, I think you said June 11, they won't actually be able to utilize the program because they won't have the triple-A rating.

I'm just wondering, Mr. Halde, if you can address that. If, for example, a double-A rating were accepted, what would be the difference in terms of assessment, in terms of associated risk level? How does it change from a triple A to a double A, and is BDC considering or would it consider that?

[Jean-René Halde]

Let's first understand that the triple-A rating requirement was part of the budget, so we were asked to undertake the CSCF with a triple-A rating as the requirement. We're starting with what we were given.

Secondly, the way to get to a triple-A rating is by putting up extra collateral, so if it's a $100 million facility of leases, basically what you'd do to credit enhance it, so you can put it to triple A, is to put additional leases in the bundle so that there's an assurance that if something were to go wrong, there's enough there so that there would be $100 million at the end.

There's a cost to that, obviously, and at some point some of them might say the cost of doing that is just getting to be a bit too high for me, I'm not willing to go there. There is an ability generally to get there, but you have to make a choice.

[The Chair, Conservative, James Rajotte]

You're right. That's exactly what they're saying. They're saying the cost of doing that is prohibitively high in their case, so they're not going to be able to use the program, which they would like to do.

In terms of risk, I respect the fact that the government has set that triple-A rating, but can you advise the committee, if there were a double-A rating, how much more risk there would be to BDC and to the government?

[Jean-René Halde]

At this point, people have to come back to us in a matter of weeks, saying how much of the facility they will take up now that we've committed to it. They have to come back and say they'll take it all, take half, or whatever. One told us he'd found cheaper financing and wouldn't be using ours, which is fine, because we'll reallocate it to someone else. Once this process is over, a few weeks from now, I think we'll have to reassess. Depending on the responses we get, we'll have to reassess where we want to go. We'll need to sit down with Finance and Industry and decide what the next steps should be.

[The Chair, Conservative, James Rajotte]

It could be part of an ongoing dialogue, then.

[Jean-René Halde]

Definitely.

[The Chair, Conservative, James Rajotte]

Some organizations that have appeared before us, like the Canadian Recreational Vehicle Association, said they were not part of this program but would very much like to be. Do you have any comments on that?

[Jean-René Halde]

We are aware of that. I think the people who appeared before you were from an association. This is not as if it's a single company that's trying to do something. It's a group of companies, which means that every single one would have to be dealt with individually. The facility was not designed to do that. Collectively, someone will have to look at other forms of helping. I don't think CSCF was designed to do what they have in mind.

[The Chair, Conservative, James Rajotte]

So there would have to be an additional program to serve their needs?

[Jean-René Halde]

Correct.

[The Chair, Conservative, James Rajotte]

The Marine Manufacturers have also approached us. They've written to every member of the committee. They talked about BDC offering floor plan financing to Canadian manufacturers for goods shipped within Canada. They mentioned BDC, but I think they're also open to EDC. They say it's not possible within the current structure but want to know if there might be something going forward.

[Jean-René Halde]

CSCF, the credit facility, does cover floor plans. Part of the $11 billion will definitely go to floor plan financing.

[The Chair, Conservative, James Rajotte]

Mr. McKay.

[John McKay, Liberal, Scarborough—Guildwood, ON]

I was going to ask a question on this floor plan business. I'm encouraged to hear that it may be in the consideration stage. We heard from the Marine Manufacturers that they were at the beginning of the season, that they had customers, but that they couldn't buy product to get it on the floor so they could display it. In the old days, I think it was actually BDC's mandate to support that kind of activity. Am I wrong about that?

[Jean-René Halde]

I believe you are, partly. In the good old days, there was a securitization market available, and dealer floor plans made that market, at least for the larger players. The $11 billion has been allocated to firms, and they can do idle loans or idle leases, equipment loans or equipment leases, or dealer floor plans. And some of them will. Some of them have said they were going to use the commitment we've given them to do some dealer floor plans.

We also know there are smaller organizations where the dealer floor plans are an issue. There's no easy answer to this. Quite honestly, for some of them there really are no programs right now. Industry is aware of it, Finance is aware of it, and we're aware of it, but there's no easy answer for the smaller players when it comes to dealer floor plans.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Can we at least say that it is under consideration?

[Jean-René Halde]

Absolutely. The same people who have appeared before you have spoken to us extensively. Everyone is well aware of the issue. It is being looked at with great care.