Trudeau’s Program for Large Firms Gives No Loans in First Month

(Bloomberg) -- Canadian companies have yet to receive a dollar from the federal government’s lending program for big firms affected by the Covid-19 pandemic.

“None have been approved because it takes some time to go through these procedures. Going through these applications is relatively complex. These are large organizations,” Finance Minister Bill Morneau said in a Senate hearing Tuesday evening.

Prime Minister Justin Trudeau’s government government opened the Large Employer Emergency Financing Facility (LEEFF) for applications on May 20. It’s designed to provide bridge financing to businesses and non-profit organizations with at least C$300 million ($220.9 million) in revenue.

It appears there’s not much interest in the program from corporate Canada.

The interest rate on the unsecured portion of LEEFF loans is 5% in the first year, rising to 8% in the second -- though companies have the option of delaying cash interest payments for the first two years. Public companies that tap into the fund must also issue warrants to the government.

Royal Bank of Canada Chief Executive Officer Dave McKay said most big companies can find cheaper ways to raise capital than tapping government lending.

“You can go into the market and do better than that yourself in some ways, and I don’t know if that was the designed element they brought to it,” McKay said in a Tuesday interview.

Last Resort

All sectors except the financial industry are eligible for LEEFF, but the conditions are strict. Firms accepting loans must agree to limits on executive pay, dividends and share buybacks.

The program gives loans of at least C$60 million and is intended to provide last-resort financing to help companies avoid bankruptcies due to Covid-19. So far, Trudeau has avoided giving large bailouts to specific sectors such as airlines.

McKay said he hoped government aid wouldn’t be necessary for large firms as the economic recovery picks up.

“Maybe they’ll be needed as things progress, but I would hope not. I think we’re in a really bad place if they start accessing programs that are that expensive and costly, and hopefully we can see recovery in other areas, and usage of wage subsidy programs and whatnot,” he said.

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