Provisions may limit applications for aid

Government financing program geared for big businesses comes with strict conditions

The conditions for the federal government’s financing program for big businesses, announced Monday, may actually deter many from applying for it, economists say.

The government’s Large Employer Emergency Financing Facility (LEEFF) will provide bridge funding to the country’s biggest employers — those with annual revenues of more than $300 million — and whose financial needs during the COVID-19 pandemic are not being met through conventional financing.

Many details of the program are still being worked out, but the government made clear Monday that companies wishing to apply will have to open themselves up to greater scrutiny and comply with conditions including: “strict limits” to dividends, share buybacks and executive pay, according to a government press release.

In a followup email Monday, the Department of Finance told the Star that dividends and share buybacks would actually be barred, while there will be limits on executive pay.

Companies convicted of tax evasion would also not be eligible to apply.

“My view is that there will be limited take-up on this,” said BMO chief economist Doug Porter.

He said the conditions themselves likely wouldn’t be the sole deterrent.

“Effectively this is a loan. Companies were already — as were households and governments — heavily indebted and you could make the case that just layering on more debt in an economic environment that’s facing uncertainty doesn’t necessarily improve your mediumterm prospects,” Porter said. “It might make them more challenging down the road by taking on more debt.”

He described the stipulation around limits on executive pay as something that could become a “political football.”

“When a company tries to get public support, it really does open itself up to much, much closer scrutiny on a number of fronts — and I would say appropriately so — and I just wonder whether every company would want to expose themselves to that kind of intense scrutiny,” he said.

“I just wonder if the potentially heavy conditionality would make some firms reluctant to look at this source until the absolute last recourse.”

Some of the conditions should actually be strengthened, argued David Macdonald, senior economist at the Canadian

Centre for Policy Alternatives.

He said barring companies convicted of tax evasion is a low bar, as very few Canadian companies have actually been convicted.

A higher bar would be adopting a rule similar to some European programs, where companies that are “substantially involved” in tax havens would not be eligible, he said.

“That would be a much bigger stick, whereas convicted of tax evasion is extremely rare for big companies,” Macdonald said.

A need for stronger rules around taxes was echoed by the non-profit organization Canadians for Tax Fairness.

“Unfortunately, Canada has a poor record of convicting large companies of tax evasion, thanks to weak regulations, transparency and enforcement,” said executive director Toby Sanger in a statement.

“The government will need to be more ambitious by requiring all companies to disclose their international structure and finances and including significant penalties to deter aggressive corporate tax dodging,” Sanger added.

Macdonald described barring buybacks and dividends as “quite positive,” as the program is meant to support Canadian workers and the economy overall, and not shareholders.

He said the government could also bar executive bonus pay over a certain period.

“To some degree, you want the terms to be disagreeable, you don’t want this be an easy road,” he said. “If the companies want, in essence, the government to take on their debt, then they’re going to have to make changes.

“You want in some sense to deter companies from using this. You want them to use market measures as much as possible. But if they really don’t see another choice but bankruptcy, this should be a resort they can turn to.” The government said it doesn’t know how many companies may be eligible to apply.

“It is important to note that this program is intended only for firms who need it to weather the crisis and recover — it is not low-cost lending, nor is it a rescue mechanism for companies that were in trouble before the crisis,” the finance department said in a statement.

“Given the design of the program, it is likely that companies will first exhaust private market options.”

The economists predicted that companies in the airline and oil and gas sector may be among the first to apply for the program.

The president and CEO of the Canadian Association of Petroleum Producers said about 15 to 20 companies in the oil and gas sector would meet the government’s threshold of a large company.

“Of them, I expect there certainly will be some companies who will view this as an important avenue for liquidity in a time of need,” said Tim McMillan.

Airports are also eligible to apply. According to the Canadian Airports Council, four airports in Canada make more than $300 million in annual revenue: Toronto Pearson, Montreal, Calgary and Vancouver.

A spokesperson for the Greater Toronto Airports Authority, which runs Pearson airport, said the GTAA has been in touch with the federal government about the program and is reviewing it.

Economists predicted that companies in the airline and oil and gas sector may be among the first to apply