Finance Committee on June 11th, 2009

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

I think sooner would be better than later. We are in the middle of June. We're experiencing lousy weather, and there won't be many boats sold if we don't get moving on this.

Mr. Poloz, you've increased your volume of credit insurance nearly fivefold. Can you give us a profile of that volume? What's the difference between this year and last, not only in volume but in the profile of the products you're insuring?

[Stephen Poloz]

Thank you.

First, let me clarify that the reference to “five times” in my introductory remarks was to indicate that insurance is several times more important as a tool for EDC than pure lending. It's true, however, that it is up substantially compared with a year ago, for the reason I gave earlier: that at this stage in the business cycle, companies become more concerned about the risk of waiting two or three months for payment from a foreign buyer. They're much more likely to request insurance in that situation, because the odds of that foreign buyer's going bankrupt during that time are much higher. So we got a big increase in applications for that program.

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

Concerning that foreign buyer, are there geographic locations, are there industry-specific locations? What is it that's making our exporters more nervous?

[Stephen Poloz]

The entire world is in recession; there are really no exceptions to that. Growth has slowed everywhere, and so those risks have risen everywhere.

Generally speaking, people are more concerned to insure a receivable if it's in a developing country, as opposed to the United States; that's a general rule of thumb. It would be fair to say that the biggest increase has been on the U.S. side, because people are most concerned about the recession in the United States, and that's a very important destination for many of these exports.

Geographically, I don't think there's really much of a story there. Everybody is more concerned, and generally a company will ask us to insure their entire book of buyers. They could be spread all around the world.

Secondly, though, speaking sectorally, there are sectors that are in more difficult shape than others: the auto sector, the forestry sector. The forestry sector has been in recession much longer than everyone else, because the U.S. housing sector was the first part of this story. The auto sector came after that. The more generalized risk increase has been more recent. So sectorally there are leading edges, and similarly, on the way out probably the first sector to show strength will be the commodities sector. It's very common in upturns.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. McKay.

We'll go to Monsieur Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair.

I will continue on the topic of the forestry sector because it is of great concern to us in Quebec.

Mr. Poloz spoke of investments of one billion dollars in loans or loan guarantees. My colleague asked a specific question about forestry company equipment. You can finance or guarantee a loan jointly with a bank. Is that right?

[Stephen Poloz]

Yes, that is indeed the case. Our usual mandate is to increase export capacity. We can grant loans to businesses to finance and share the risk with their bank, and so forth.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

You estimate that activity at one billion dollars for Quebec. You say that there is $2 billion for the forestry sector, half of which goes to Quebec companies.

Quebec companies are complaining that they have not received loan guarantees from the government, and thus they lack funding. The official argument put forward by the government is that further to the softwood lumber agreement, these loan guarantees are no longer possible. But you are saying that you do grant loan guarantees to the forestry industry.

What type of loan guarantees does the softwood lumber agreement prevent you from granting?

[Stephen Poloz]

As I mentioned, most of our activities in this sector consist of granting credit insurance. This is the most common formula for these businesses. Direct loans are much less common, as our direct guarantees, but they are available in theory.

The issue is broader than that. If a company applies for a loan and its bank does not want to lend it money, then that company's situation must be analyzed. We must find out if it is not creditworthy or why the bank does not want to be involved. It is not just a matter of conducting a commercial transaction simply because there is a need.

According to international rules, it is very important for EDC to ensure transparency in order to remain commercial and to grant loans to creditworthy businesses.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

If I understand correctly, you are not of the opinion that the U.S.-Canada softwood lumber agreement prevents you from granting loans. You operate on a basis of trade and risk assessment. In certain cases, you determine that the risk is not justified and so you do not grant the loan.

As you are undoubtedly aware, the government's official argument is that the softwood lumber agreement between Canada and the United States prevents you from providing loan guarantees to the forest industry. I do not know whether Mr. Halde has an opinion on this subject, because we discuss it regularly in the House of Commons. We are always told that loan guarantees are not allowed under the U.S.-Canada softwood lumber agreement.

Does that ring a bell with you? Do you have any limitations? Mr. Halde, do you have an opinion on this? I would like to hear both versions.

[Jean-René Halde]

I must confess that I would like to give you a more informed answer than what I could give you right now. I would like to think about it before I give you an answer.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Does that mean that it is not really a problem? The forestry companies took the time to come and meet with us and to issue a plea for help. They need loan guarantees from the government, which is not granting any. You must be aware of these requests.

[Jean-René Halde]

This morning, I met with Minister Blackburn and Minister Lebel to discuss forestry. We are concerned. My answer is that we have not yet implemented our guarantee on the letters of credit. That will be launched soon. I would rather check than answer you without having the proper information. You asked me a specific question. As for the forestry sector, we have not yet implemented our guarantee on lines of credit. I would rather give you the right answer than take a chance.

However, I can tell you that all efforts are being made to provide assistance. That is what I explained this morning to the two ministers. All of our other programs are up and running, and we are in the process of implementing this one.

[The Chair, Conservative, James Rajotte]

Thank you.

If there's anything either of you gentlemen can provide to the clerk with respect to that issue—I know it's a very large question--if there's something you want to do formally, we'd appreciate it.

I have Mr. Kramp next, please.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

I'd like to discuss, Mr. Halde, your role or capacity as a traditional lender, with the recognition that there are some serious complaints that our big five just aren't filling the marketplace, even though they may have some capacity.

In particular—I'll just use one example, and I know that every colleague around the table has many examples like this in their riding—I'll take an auto dealership that has been in business for 20-plus years, blue chip all the way: always made money, never missed a payment, always on time, and in a financially great position. They carried a line of credit for $5 million; now the bank advises them to cut it immediately to $500,000. I ask you how many vehicles you can put on a lot for that.

Secondly, of course, they always required an additional, say, $100,000 just as a deposit to keep on file, and now they want that up to half a million dollars—of course, coincidentally, just the same amount as would match the line of credit that is offered. And of course, instead of the prime plus one or prime plus three-quarters rate they always enjoyed as a preferred customer, now it's prime plus five per cent. Quite frankly, the bank is saying to them, you're out of business.

That is happening across this country for those who are not tied to traditional sources such as a GMAC. But of course they don't take them, because they weren't a customer before; they were with a different company.

Do you have a role, or will you potentially have a role or a capacity to serve people like this, or do we have to wait for some particular point, until we come up with a new instrument or new vehicle? What are your thoughts on this?

[Jean-René Halde]

We already have a great number of auto dealers as clients. As a matter of fact, as the auto crisis was evolving, rest assured that we were reviewing our auto dealer portfolio on a regular basis. We do lend to these folks and we are happy to do so. We look at it case by case, and depending on the case, if we believe that the business is fine and has....

Now, you have to understand that we generally do project financing, which is usually putting up the dealership or something. We also do some working capital support, more recently as part of BCAP.

Every single situation is looked at individually. If we can help in this case, if you have a particular example in mind, we'll look at it.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

There isn't a member around this table who doesn't have horror stories like that.

[Jean-René Halde]

And we get those calls on a regular basis.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Bona fide, not fly-by-night, risky....

Thank you very kindly.

Mr. Wallace will share my time.

[The Chair, Conservative, James Rajotte]

Mr. Wallace, you have two minutes.

[Mike Wallace, Conservative, Burlington, ON]

That's fine. It won't take me two minutes.

Just so I'm clear on the floor plan financing, I'm hearing from my marine friends and those in the recreational business, and the agriculture community, actually, for their dealerships, that they'd have a hard time making a triple-A rating. They would be out of luck, the way the current security facility is set up. Is that not correct?

[Jean-René Halde]

If they can't put together a security of at least $100 million triple A—the purpose of that facility was to do that—then I guess that facility can't help them.

[Mike Wallace, Conservative, Burlington, ON]

Okay. Are you aware of the program they have south of the border in the United States to help floor plan financing specifically for dealerships? Have you been following what they've been doing down there, or are you too busy trying to get this organized up here?

[Jean-René Halde]

The answer is not enough, probably. For example, just so you know, we met not long ago with PricewaterhouseCoopers from the U.S., which dealt with the TARP program and the TAF program. The reason we did is that we wanted to make sure, with the way we were structuring CSCF, whether we could learn from them in terms of their U.S. experience. I'm happy to report that they thought the way we were putting the CSCF together was quite good.

On the dealer floor plans, no, specifically, I'm not familiar.

[Mike Wallace, Conservative, Burlington, ON]

Finally, I have a comment. Actually, I was encouraged to hear you say that some organizations may not take us up on the money that's available, because the whole purpose of our doing this is to make sure there's credit and financing available for business to continue to operate. If they are able to find it in the private sector or elsewhere, that's a good-news story, in my view.