Finance Committee on June 9th, 2020

[Michael Cooper, Conservative, St. Albert—Edmonton, AB]

Surely you're aware that there has been a lot of concern about rules that have been changing and about eligibility criteria that are difficult to meet. There seems to be concern around issues of red tape. Surely you're aware of these concerns. What is EDC doing to address them?

[The Chair, Liberal, Wayne Easter]

Go ahead, Ms. Lavery.

[Mairead Lavery]

Thank you for that, Mr. Cooper.

Of course, we do hear from customers who would have liked to see the program roll out faster than it has. We've been working very closely with the associations to try to ensure that the support was specifically needed to help the main drivers of the industry, which were the E and P companies.

It has taken some time to work out the eligibility criteria and to work out the specifics of a very complex guarantee product, as Mr. Burlock said, that's linked to reserve-based lending. We have been driven to ensure that it's available for the redetermination period.

We have been keeping in constant touch with the associations and understand the frustrations of their members, but believe we have a product now that is available at the time we need it. It is one of the products that we are providing to the oil and gas sector.

We should also mention our bonding products, which provide support for letters of credit. Those are products that EDC has always had available and that we have been continuing to issue, and in fact they are ahead of this actual guarantee going out into the market.

There's a combination of products, including our credit insurance product, and the RBL guarantee will be there to support during the redetermination period, which is when it's needed.

[The Chair, Liberal, Wayne Easter]

Thank you.

On Mr. Cooper's question, the individual indicated that he didn't think the loan would be finalized until...I believe it was August. You're saying, Mr. Burlock, that this is practically ready to go now and should roll out. How long is the process after that?

It does amaze me, not just with EDC but with so many things in this crisis, that something seems to be able to get done within days in the United States and but takes much longer in Canada.

When will this be available, and how long will the process be after that? Is this guy right that it's going to be August before it gets done?

[Carl Burlock]

I'm not sure if it's the same type of support that this company is referring to, but in terms of the guarantee for reserve-based lending, we would work at the same pace as the banks. As they come and do their redeterminations and renew the loans, we would apply the guarantees. We're looking to work at the same pace as the banks and not slow the end result for the customer.

That's been part of the process we've put in place—a little bit of time up front to try to ensure that we have something that can flow more quickly.

[The Chair, Liberal, Wayne Easter]

Thank you.

Next is Ms. Koutrakis, followed by Mr. Morantz.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you, Mr. Chair.

Thank you to all our witnesses this afternoon. It's nice to see you before the finance committee.

EDC has commented on some short-term trends and challenges faced by retailers as a result of COVID. These include a rise in U.S. retailers declaring bankruptcy, limited liquidity to produce next season's merchandise and a decline in demand for consumer products. So far, we've seen a number of short- to medium-term solutions for businesses through and including the BCAP and CEBA loan programs.

What long-term challenges might continue to exist following the crisis, and what role can EDC play in providing these long-term supports?

[Mairead Lavery]

We have been public in giving some information by sector on what we see in terms of the sectors that have been more impacted through the crisis and also what this means for emerging from the crisis. Without a doubt, retailers have been one of the most impacted sectors. I think we are seeing some fundamental shifts in retailing. That said, not all retailing is the same. We are seeing it much more as it would relate to clothing than to food, for example. There's a very large range as it relates to retailing.

I think what we look to in emerging from the crisis are sectors that we can help accelerate. As we roll back to perhaps looking in the longer term at just exporting, then we look at how we can help companies actually sell their products further abroad. We have a number of programs that would help companies do that. They're not just financing products but products that make introductions for them, help introduce them to foreign buyers and make connections for them so they have a place where they can extend their products.

It's hard for many of us to think beyond COVID-19, but when I think of recovery, it's about making sure that companies are strong enough and ready for recovery. It's about making sure they have the working capital that will be needed to build the inventory to sell. Then it will be finding other opportunities to expand their reach and help them maybe even do acquisitions, to move closer to their customers if they're in another country, or build warehouses, etc.

We have many tools to help Canadian companies diversify. Those would be tools to see how the Business Development Bank of Canada could help, and the trade commissioner services. If there was a specific need to look at some sectors, then we would try to put our sector expertise into play as well. We do see opportunities in terms of food security, agriculture, advanced technology and clean technology. Those are areas where EDC puts some focus to make sure we are supporting them going forward.

[Annie Koutrakis, Liberal, Vimy, QC]

Thank you for that.

Yesterday the EDC published a report entitled “Women in trade: What it takes to succeed”. It outlined the under-representation of women entrepreneurs in Canada. It was also noted that equal ownership of businesses by men and women would add $2.5 trillion to $5 trillion to the global economy.

What needs to be done, in your opinion, to foster greater female representation in Canadian business? Could this greater representation create a greater source of economic growth following the COVID-19 pandemic?

[Mairead Lavery]

Absolutely. Women's entrepreneurship is something we've been talking about for a number of years and really focusing on. The difficult answer to hear is that there isn't one silver bullet for this. We have to do many, many different things, whether that's giving women the confidence to declare themselves as a woman-owned or woman-led business or whether it's creating the networks they can access to understand the tools that are available to them. We're building understanding and building awareness and then ensuring that our programs have no bias in them and that they are very appropriate and deal with the different needs of women as business owners.

We've gone as far as designing a website page specifically for women, because what we had didn't work. That's a very simple example. As a different example, in our investments program we appointed a lead to look at investing in women-owned, women-led businesses, a woman who can work with those entrepreneurs. They feel more comfortable with her in understanding what they need to accelerate their business. I think that's been one finding. We appointed a lead for the rest of our products as well to educate and bring women to the table and ensure that those products were available.

We're very pleased. We started with a small program at $50 million. That program is oversubscribed. The level of support that we've seen and the level of interest has been much greater than we imagined. It's certainly something we're focused on.

During COVID-19 we launched what we called an investments matching program, whereby, if investors were investing in companies, EDC would match their support. I'm really pleased to announce that we have a number of woman entrepreneurs on that list as well. We're starting to see it coming into more of our mainstream products rather than specifically designed products.

[The Chair, Liberal, Wayne Easter]

Okay. Thank you both.

We're turning to Mr. Morantz, followed by Ms. Dzerowicz.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

Thank you to the witnesses for being here today.

I have just a couple of questions. I'm interested in understanding more step-by-step how these loans get implemented.

First, when it comes to the underwriting, do you rely on the banks for the underwriting, or do you work with the banks? Do you have your own set of criteria the banks have to adhere to before you'll agree to a guarantee on a loan? If you could answer that as briefly as possible, I have a few follow-ups on this topic.

[Mairead Lavery]

I will answer quickly: We rely on the banks' underwriting.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

A bank will approve a loan application, and as long as it's okay with them, you will provide your guarantee.

[Mairead Lavery]

The program is governed by specific legal agreements that set out the criteria specifically for BCAP. Yes, if the application meets those criteria, which are simplified, then we do rely on the banks' underwriting.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Are these agreements between you and the banks? Who sets the criteria under the agreement?

[Mairead Lavery]

If it's with respect to our existing products, we set the agreement with the bank, but for BCAP there were a number of policy decisions. We worked with our colleagues at the Department of Finance and at Global Affairs to ensure that the criteria were well understood and were available to all.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

The underwriting criteria are ultimately from you and the government, then, and not set at the bank. Is that right? They are described in this agreement you refer to.

[Mairead Lavery]

The conditions of the guarantee are described by us in the agreement, but loans themselves are with the financial institution and its customer.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Presumably the terms under which you provide a guarantee must mirror or reflect in some regard the underwriting criteria, the decision of the financial institution to provide the loan.

[Mairead Lavery]

Yes. What we are setting is the tenor of the guarantee. We're setting the percentage of the guarantee. We're setting the fee. We're setting some conditions related to it in that we don't want to see those funds being used to repay loans. We don't want to see those funds being used for shareholder payments, etc.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

What I want to clarify is that these guarantees, though, are for the security of the bank and not for the security of the borrower. If a loan were to default, the borrower isn't off the hook. You would take, likely, assignment of the bank's security, like a normal guarantor would, and pursue the borrower.

You said earlier that there are a number deferrals that are in place. When we had CMHC before the panel, I asked about that, and they said that the deferrals were going to be capitalized in some cases. Is that the plan? Once we come out of the crisis, will borrowers be expected to repay their deferrals? Will the interest be capitalized?

[Mairead Lavery]

Is that specifically on the BCAP guarantee itself or on our existing products?

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

It's on either, or maybe on the BCAP if there's a difference. Start with that.

[Mairead Lavery]

Well, with regard to the BCAP guarantee, the loan itself is with the bank for which we are providing the guarantee. I think, as we said, we are awaiting details from the banks of actual guarantees that have been done.

The guarantee was structured to provide a guarantee on additional lending, not on lending or loans that existed at the time of the COVID-19 crisis. It would be, in my view, unlikely that this would be the one that would be deferred, because that would be a discussion with the bank and its customer.