Few takers for federal COVID-19 loan program
Large employers balk at initiative criticized as being costly, unworkable
Only about a dozen companies have applied to Ottawa’s emergency loan program for large employers since it launched in May, with two having so far been approved.
Is the program a failure or doing what it was designed to do, namely act as a loan program of last resort? Experts say it’s the latter, which then begs another question:
If some of the sectors most impacted by the COVID-19 pandemic — including hospitality, tourism and aviation — can’t or won’t apply to the large employer loan program, what kind of financial assistance do they hope to get from the government?
This week, Deputy Prime Minister Chrystia Freeland reiterated that the Large Employer Emergency Financing Facility (LEEFF) is “a form of significant liquidity support that is available for all Canadian companies to apply for,” when asked about financial assistance for the airlines.
Announced in May, the LEEFF program would provide a loan of at least $60 million 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.
Five months later, only two companies have been granted a loan under the program, as large employers suffering massive pandemic-related losses, including airlines and airports, continue to balk at a loan program that has been criticized as being too expensive and unworkable.
LEEFF loans start with an interest rate of five per cent, rising to eight per cent the following year. They would also allow the government to take a stake in public companies and would require restrictions on executive compensation, among other things.
“We’ve been on the record since at least May that LEEFF is just a nonfactor for airports,” said Daniel-Robert Gooch, president of the Canadian Airports Council. “Airports already have access to credit at favourable rates. The problem is not access to credit. The problem is the debt.”
With revenue losses of about $4.5 billion expected in 2020 and 2021, airports across the country project taking on $2.8 billion in additional debt over that period, Gooch said, but with limited options to increase revenue as air travel remains largely restricted.
Among other proposals, the council has been urging the government to extend rent relief for airport authorities for at least the next three to five years until air passenger traffic can return to normal.
Paul Boothe, a former senior deputy minister of industry at the federal level, said the fact that there have been few LEEFF takers is not a sign that the program isn’t working.
“This is exactly how it’s supposed to work. Basically, it is supposed to be for companies that can’t get financing from the private sector,” he said.
“I think it was a good idea to put this program in place ... I never thought that the take-up would be more than a small number of companies and I don’t think it should be.”
Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Markets, said the high interest rates and restrictions would have been attached to LEEFF because it has been designed to be a loan program of last resort, which also means “it’s not an attractive funding facility by any measure.
“It’s tough to look at this as a realistic option until there kind of is no other option.”
Nonetheless, the program has been raised by government as an option for airlines that have been calling for federal assistance. Some are looking into it.
Porter Airlines said it applied to LEEFF to learn more about the terms, but is considering whether it will pursue a loan. An Air Transat spokesperson told the Star that the airline is “considering LEEFF and (is) currently assessing whether it would cater to our needs.”
WestJet said it has not applied, while Air Canada did not return multiple requests for comment.
The National Airlines Council of Canada, which represents most of the major airlines, urged Freeland in a letter in August to move beyond LEEFF in favour of developing a sectorspecific approach, which should include low-interest loans, loan guarantees or direct assistance from government.
“Our overall position ... is that LEEFF was not intended for a sector that is still at stage zero seven months out, and that does not have any line of sight of when it can move from stage zero, while other sectors of the economy have moved forward,” council president and CEO Mike McNaney told the Star.
The Canadian Union of Public Employees, representing about 15,000 flight attendants, has said any direct assistance from government must come with a public stake in the companies — an idea the government is exploring, but which the airlines council does not support.
(Transport Minister Marc Garneau’s office said Friday that finding solutions for the airline sector is a priority.)
Two companies have so far been approved for a LEEFF loan, while a “number of other” applications are being considered, according to the Canadian Development Investment Corporation.
The first company, Gateway Casinos & Entertainment Limited, which has properties in B.C., Alberta and Ontario, was provided $200 million of liquidity on Sept. 25. The loan allowed it to start bringing back employees as its properties reopened, according to a joint press release from the company and the Canada Enterprise Emergency Funding Corp.
(A Gateway spokesperson referred the Star to the press release.)
The second, Conuma Resources Ltd., a B.C.-based steelmaking coal producer and exporter, was given access to $120 million of liquidity this week.
“The pandemic has limited the access to capital from more traditional sources, so we welcomed the government’s decision to offer fair, accessible financing packages to large employers like Conuma,” said the company’s president, John Schadan, in a statement to the Star.
As several provinces now find themselves in a second wave of the COVID-19 pandemic and governments implement new lockdowns, the federal government should consider modifying LEEFF to make it more flexible and amenable to negotiation, said Ben Brunnen, vice-president of fiscal and economic policy at the Canadian Association of Petroleum Producers.