Finance Committee on June 9th, 2020

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Yes, but you would have an estimate of the percentage that would go to Canada's biggest banks. Is that right? You would already have a sense of how many of the applications would come through the big six.

[Carl Burlock]

That's correct.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

What percentage of the applications do you expect to come through the big six?

[Carl Burlock]

We would expect a fairly large number, given the number of customers they have and the number of companies they deal with.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Would it be fair to say a majority?

[Carl Burlock]

Yes.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Okay.

There is no cap on any of the rates that they charge. However, among the big six, what is your impression of the interest rate that they would be charging, despite the fact that EDC is guaranteeing the loan?

[Carl Burlock]

That's a number that we could get more accurately from the big six. I don't want to speak on their behalf. I would say that, as Mairead mentioned in her opening, the banks have provided deferrals of principal to their companies, to their customers, and we believe they have an interest in providing them additional credit so they can grow as the recovery starts.

Really, that's the basis of this program: that the banks will want to help their companies recover and grow. This will help that credit flow, our taking 80%. That will take some of the risk away from the banks and help credit flow.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

I guess that's my point. The big banks have announced $5 billion in profits so far during this pandemic. They've been showered with various levels of support. Putting aside the EDC, the OSFI estimates it is $750 billion in liquidity supports to date. If there is no cap on interest rates, the government is socializing all of the risk but the banks are privatizing all of the profit. I think that would be of concern to a lot of Canadians.

You mentioned the issue of deferrals. What are the provisions in this program for a deferral or interest in kind? That has certainly been a controversy in the LEEFF program, whereby Canada's largest companies get monies but don't have to pay interest on it. For folks who have mortgages on their homes, the mortgage deferrals still come with all kinds of penalties and fees, and with interest charges on top of charges. What are the provisions in this program for smaller companies to pay interest in kind or to have an interest-free deferral over a period of a year or two, as with the LEEFF program?

[Carl Burlock]

Every loan will price the risk, and the purpose of the guarantee is really to encourage lending rather than to dictate pricing. In fact, I guess, specifically to answer in terms of the ability to do deferrals or interest in kind, if banks are willing to do that, they can approach us under the guarantee mechanism for approval to do it.

[The Chair, Liberal, Wayne Easter]

Okay. We'll have to end that round there and start on the second round of five minutes.

We'll start with Mr. Cooper and go on to Ms. Koutrakis.

Go ahead, Michael.

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

Thank you, Mr. Chair, and thanks to the witnesses from EDC.

Back in April, EDC announced a program to backstop loans for the oil and gas sector. In particular, the program was focused on companies that produce 100,000 barrels of oil or less per day. What is the status of that program?

[Mairead Lavery]

Carl, would you comment?

[Carl Burlock]

We are in the process of operationalizing that program now with financial institutions that lend to those companies. We have a guarantee developed, and we actually have application documentation now in the market that's available to companies. The guarantee is very close to being operationalized and used in the market.

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

You have application documents that have been out and circulated, but there is no actual application process at this time. Is that right?

[Carl Burlock]

There has not been as of yet.

Maybe I'll just add that this type of guarantee is being provided to exploration and production companies that finance themselves based on the value of their borrowing base. That borrowing base gets redetermined twice a year, so really, we're putting the guarantee in place so that it coincides with the spring borrowing base reset. We intend to have it ready so that when banks start re-evaluating credit, it will be there to help keep liquidity in the sector during this period of stress in the markets.

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

Thank you.

You said that it will be operationalized imminently. I don't want to put words in your mouth, but as I interpret what you said in your answer.... It's been a number of months now. We're talking about over 50 days since the program was announced. Could you be a little more specific?

[Carl Burlock]

Yes. We're working with the banks now and are really very close to finalizing the final details of the processes that will be used to approve the applications and provide the guarantee on the loans.

Again, the timing coincides with the redetermination period of the borrowing bases. That's really the key milestone. It's to have the guarantee ready for when the semi-annual redeterminations happen.

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

We heard from a witness who came before our committee a meeting or two ago. He represents a large company that is a TSX company based in Edmonton. Their company has significant operations in the United States. He indicated that his company brought an application for an EDC loan on March 10. He doesn't expect that any support will be available until at least the latter part of August.

By contrast, he noted that an application that was brought for similar support in the United States was processed and the financing was provided within five business days. That's just one example, but that seems to be a striking difference between a matter of five business days in the case of the United States versus a months-long process under EDC. He expressed some frustration. I was wondering if you might care to comment in broad terms on the striking contrast.

[The Chair, Liberal, Wayne Easter]

I'll just interrupt for a second, Michael. Was that with EDC or BDC? I thought it was BDC.

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

It was EDC. I have the transcript in front of me.

[The Chair, Liberal, Wayne Easter]

It was. Okay.

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

Yes.

[The Chair, Liberal, Wayne Easter]

Good, because I wondered about asking that question myself. Thanks, Michael.

Go ahead, Mr. Burlock.

[Carl Burlock]

We certainly look forward to the opportunity to hear from the company directly to make sure that we're meeting their needs for whatever it is they were looking for. It's hard for me to answer more precisely without having heard from the company and seeing the details.