First Nations bond issue breaks new ground
Raises $545M to buy stake in oilsands facility
An unprecedented foray into the Canadian bond market by two small First Nations communities in Alberta may provide a template for future business partnerships involving Aboriginals.
It took three years to engineer a deal that turned Fort McKay and Mikisew Cree First Nations into owners of a 49- per- cent stake in a Suncor Energy Inc. storage facility near Fort McMurray. The bond market was a crucial part of the solution, with investors buying $ 545 million of 4.136- per- cent bonds due in 2041 last month. It was the largest debt sale for an Indigenous group in Canada.
A lack of cash has often prevented First Nations from taking equity stakes in projects as opposed to signing a traditional impact and benefit agreement that outlines how they will be affected and share in production. Mistrust between the peoples who have inhabited the country for thousands of years and the newcomers is another hurdle.
“We really started with a blank sheet, working with Suncor and the First Nations on how to develop the governance documents and the financing approach that was going to be a win-win for everybody,” said Mark Saar at RBC, which structured and marketed the deal. “What made it successful at the end, in all the negotiations we had, is the implicit trust between the parties.”
The sale of the bond, rated BAA1 by Moody’s Investors Service and triple- B ( high) by DBRS, was preceded by a fixed- income road show, which for some investors was the first time they did business with Indigenous people, said Jim Boucher, Chief of Fort McKay First Nation, a group with over 800 members that has become the owner of a 34-per-cent stake in the tank farm.
“It was very enlightening for them to be sitting across (from) a First Nations group who were directly involved in a bond issue,” said Boucher. “Some of the people were quite impressed.”
Mikisew Cree First Nation, with a population of 2,618 according to data from 2013, bought a 15- per- cent stake in the tank farm.
“I don’t think there’s one proposed mega- project in Canada that is not contemplating, or has not been contemplating in some way, how to get First Nations alignment of interest in the project via an equity stake,” RBC’s Saar said.
First Nations Finance Authority, set up in 2005 and governed solely by the First Nations communities, is another example of Indigenous peoples’ activity in the bond market. It most recently sold $126 million of 3.05-per-cent securities due in June, 2028, in October.
With the proceeds from the sale of the bonds, the First Nations get a slice of a storage, blending and cooling facility for bitumen from the Fort Hills project.