Thank you, Mr. Chairman.
Good morning, and thank you for inviting me back. I will keep my comments short and to the point.
When I was here in March to discuss business access to credit, you may recall that I reported that in response to the credit crisis, we increased our traditional lending and that we would soon be sending our annual report to the Minister of Industry for him to table in the House. While I cannot yet speak to the specific numbers in the report, it will show that we have increased our lending portfolio by more than $1 billion in the last fiscal year, an increase of some 11% compared to last year.
You may also recall that I mentioned two new initiatives. The first was the Business Credit Availability Program (BCAP). The second was the Canadian Secured Credit Facility (CSCF). These two initiatives are up and running and available to the market. I will first describe the BCAP and then the CSCF.
BCAP is a program in which BDC, EDC, and private sector financial institutions are participating to help ensure that at least $5 billion in loans and credit support is made available to creditworthy businesses whose access to financing would otherwise be restricted. It's best understood as a program of greatly enhanced referrals between BDC, EDC, and banks to collaboratively finance creditworthy clients. For us it also means offering new financing possibilities to Canadian businesses.
How we do it for each business depends on the need. For larger corporations we're now participating in syndicates to replace departing lenders. For mid-market sized loans, financial institutions are sharing an increasing number of commercial mortgage deals on a pari passu basis with BDC. When mortgages are small, where it's not efficient or cost-effective to have the paperwork, we purchase a 50% interest in the mortgage portfolios. The original lender maintains and manages the relationship with the client and collects and remits payment to BDC. This is much simpler for the client. There's one registration, one agreement, one negotiation, one payment, and it provides much-needed capital for commercial development projects.
You should also know that we've completed the work to create a new operating line of credit guarantee. Its aim is to support Canadian businesses who are constrained by reduced access to working capital credit and to share the risk with other banks. In line with BCAP's objectives, it provides incremental financing to creditworthy companies by preventing reductions in operating lines of credit or enabling fast-growing businesses to gain access to a larger operating line of credit.
The new BCAP collaboration is working well, entrepreneurs are getting more opportunity to make their case, potential deals are being referred, and businesses are benefiting. Through BCAP specifically, we at BDC have provided more than $600 million in new financing to Canadian businesses since February.
In terms of the Canadian secured credit facility, also in the budget, the government asked us to establish and manage this facility, which has an allocation of up to $12 billion. Its primary objective is to stimulate economic activity in Canada by supporting sales and leasing of vehicles and equipment through BDC purchasing term asset-backed securities. A second and very important objective is to promote renewed investor confidence in the Canadian term asset-backed securities market, as well as in vehicle and equipment financing more broadly.
The CSCF is now up and running. We've already allocated close to $11 billion to two distinct groups. First was the large enterprise tranche with $10 billion. Following a price discovery process in early May, we sent commitment letters on May 15 to fifteen eligible originators who have AAA securitization experience. The minimum transaction size for these transactions was $300 million.
Second was the small enterprise tranche. This was for $1 billion. We recently sent the allocation letters and will be sending formal commitment letters today, June 11. In the second tranche, originators need not have securitization experience. The minimum transaction size is $100 million and the maximum is $300 million.
The second tranche completes our first allocation. We anticipate a second round of allocation in August. In that round we expect to allocate the remaining amount available, which will be at least $1 billion. With these allocations now in place, we expect the first cheques will reach the market in a few weeks.
In sum then, BDC is proactively helping business gain access to credit. We're increasing our regular lending and still investing in our technology companies and venture capital funds. We're also doing the two things that the government asked us to do: participate actively in BCAP and establish and manage the CSCF. Through BCAP we've provided Canadian businesses with $600 million in new financing in slightly more than four months. Through the CSCF we are allocating $12 billion to restore liquidity and confidence in the term asset-backed securities market. Our people understand the importance of what's happening in the economy and, I believe, have risen to the challenge.
Thank you for your time, and I will be happy to respond to your questions.
Thanks for your time. I'll be happy to respond to your questions.
Thank you, Mr. Chairman.
We're very pleased to have this opportunity to report to the members of this committee on our progress in helping Canadian businesses access more credit.
Since our president last met with you in March, the volume of demand for our credit insurance, in particular, has grown at a swifter pace than we've ever experienced in EDC's history. By the end of April, for example, we had already exceeded the number of new credit insurance transactions that we had for all of last year.
As you are aware, Export Development Canada supports Canadian businesses by providing market expertise and financial tools to help them expand their business internationally and reduce their credit risks. Our services are more important than ever during this credit crunch, when traditional financial institutions have limited flexibility.
On the financing side, in particular, EDC provides loans and lines of credit to foreign companies buying from Canada; loans to help Canadian companies invest in projects or operations abroad; guarantees to banks, making it easier for them to lend to exporting companies; and equity financing, either directly to Canadian firms or through private equity funds.
Importantly, EDC's credit insurance not only protects firms against the risk of non-payment but also acts as security that allows their banks to extend their borrowing power.
We do all this directly and in partnership with private sector financial institutions. And we do it on commercial terms, without annual appropriations from Parliament.
Thanks to prudent financial practices in better times, EDC was able to step into an expanded role in the second half of 2008, taking on the most business in our corporate history. We served over 8,300 Canadian companies last year, and that was an 11% increase over 2007. EDC facilitated $86 billion in exports and investments, an increase of over 23% since 2007.
As you know, the government also turned to EDC to help address gaps in the domestic credit market. It boosted EDC's share capital, with the possibility of injecting more capital if needed, and broadened our mandate and scope of activity for a two-year period. The government also raised the limit for our Canada Account from $13 billion to $20 billion. This account is used to support transactions in the national interest. EDC facilitates these transactions.
For example, as of May 31, EDC had about $12 billion in loan commitments under the Canada Account, including about $8 billion in financing for General Motors and Chrysler to assist them as they restructure.
Importantly, our domestic activities are being done in cooperation with the private financial sector and BDC. In April and May, EDC established new arrangements with Canada's major credit insurance providers, and with banks and surety companies, to collaborate on domestic credit insurance and domestic bonding through reinsurance or guarantees.
We expect these arrangements to add about $3 billion in new financial capacity to the domestic market to help Canadian companies get through the recession.
Let me outline basically how it works. EDC provides reinsurance or a guarantee on part of a transaction amount. The bank or the insurer reserves, therefore, less of its own capital to take on new risk, and it can then provide more credit to Canadian companies, either existing ones or new ones.
In addition, EDC and BDC are working with Canada's banks to add financing capacity to the market through the Business Credit Availability Program, the BCAP. Together, we are providing loans at market rates to businesses with viable business models whose access to financing is restricted.
We also meet regularly with representatives from the Department of Finance and the Bank of Canada to share information and search for more effective ways to collaborate.
Let me now provide a snapshot of EDC's activity in the first four months of this year. Our financing and insurance volumes for Canadian companies reached $22.5 billion. That's just above what we did for the same period last year. Credit insurance is by far our most important financial tool, at $16.4 billion in this period. It was nearly five times our financing volume. Our export business volume in emerging markets reached nearly $5.6 billion in this period. That's tracking about the same as our results at the same time last year, in spite of the more troubled economy we face at this time.
There were a couple of highly challenged sectors. EDC served 446 forestry companies in this period, for a total business volume of $2 billion. Nearly half of our customers in the forestry sector are from Quebec. In the automotive sector, EDC's commercial business reached a volume of nearly $1.4 billion in this period. Receivables insurance took up almost $1 billion of that amount.
Overall, we've served 600 more customers to the end of April than we did for the same period in 2008, with some 7,100 companies so far this year. This compares to the 8,300 customers I mentioned earlier for all of last year. This barely takes into account our new domestic transactions that are just now coming on stream. Seen against the 22% forecasted decline in Canadian exports this year, this strong demand for EDC's services I think is even more noteworthy.
Finally, I'd like to give you a sketch of our latest developments. On March 18, for example, EDC committed up to $40 million in the $180 million renewal of a syndicated facility for New Flyer Industries Inc. This Winnipeg-based company manufactures transit buses with a focus on energy-efficient vehicles. The syndicate of lenders included Scotiabank and Bank of Montreal.
Just last week, we announced that we were providing $57 million in debt refinancing to Clearwater Seafood, a Canadian icon in the seafood industry with well-established markets around the globe. The financing will be provided by EDC and BDC, along with GE Capital Solutions and the Nova Scotia government.
These are just two examples of how EDC is making use of the additional flexibility granted in this year's budget.
By the end of May, we had signed nearly $100 million in loans under our temporary domestic powers, and there's more than $700 million in the pipeline so far. The take-up on our domestic bonding, reinsurance, and guarantees by both surety and banking partners in Canada on behalf of their customers was almost $19 million, but there is more than $900 million currently in the pipeline under review. On the domestic credit insurance side, we're still in the process of completing the various partnership agreements, but we expect take-up to be strong.
As you can see, EDC is working hard to help Canadian companies through this economic downturn. I'd also like to reiterate that we operate in the commercial sphere, just like a bank or insurance company. We do not provide subsidies of any kind to any industry. Our customers must have viable business plans to show that they can honour their financial obligations.
As we move through 2009, we will continue to provide more companies with the additional access to financing that they need to survive and compete beyond this recession. Always we are focused on the benefits that we provide to Canada. In 2008, for example, EDC helped generate 4.4% of Canada's total GDP and supported 572,000 Canadian jobs.
Thank you. I welcome your questions.
Thank you for your attention. If you have any questions, I would be pleased to answer them.
Clearly this was not an area of expertise for BDC, so the first thing we had to do was acquire the expertise, both by hiring people who had the relevant expertise and by getting the best consulting firms in the area. Once that was done, we had to decide on the exact program. The next step was to do a price discovery process, which meant writing to all the various stakeholders and asking how much funding they would need, given different pricing. If a company is in relatively good shape and can borrow relatively well in other markets besides securitization, they might say that past a certain number of hundreds of basis points they're really not interested and that they'll finance themselves in other ways, while others would really want that.
So we had to go through a price discovery process with all of the stakeholders, and quite candidly, it was a bit of a lengthy process, because we were waiting for them to come back to us with the information. Once that came in, we then made a selection of who should get what, in conjunction with the Department of Finance and in consultation with Industry Canada. Once that was done, the letters went out. They were initially just allocation letters telling them what they were getting. Then, about five days later, the formal, lengthy, legal letter hit them. That's what I was saying to : at that point, the behaviour of those companies should start to change.
I would like to welcome Mr. Poloz and the president of the BDC, Mr. Halde. My first question will be to him. I will borrow an expression he used earlier, risk appetite, to distinguish between his bank and traditional banks that we are more familiar with.
I will also have a second question to ask him in the seven minutes during which I will have the pleasure of conversing with him. I wonder what suggestions he could make to us. Many questions have been asked, and we may have certain ideas as to the answers, but are there specific things parliamentarians could do to make his life easier and thus do more to help our economy recover?
Earlier, he gave an excellent explanation to Mr. Wallace, saying that BDC is prepared to go as far as it can in terms of risk. He compared BDC to charter banks, among others. Has BDC conducted objective analyses to determine whether its appetite for paperwork is greater?
During your presentation, when speaking about mortgages, you said that it is not efficient or cost-effective to add to the paperwork. Something I hear very often is that people are very satisfied when they work with BDC. However, they also say that they like paper. Have you performed objective analyses of the number of forms people dealing with BDC must fill out as compared to charter banks? Is that simply a reflection of the increased risk?
Earlier, Mr. Carrier brought up the forestry sector with you. I will share with you our political analysis of the situation.
We believe that it was a mistake to systematically and across the board reduce the taxes paid by large corporations. By definition, a company that had not made a profit and thus did not pay taxes did not benefit from these reductions. Inevitably, the oil patch and the banks were the ones that received the lion's share of these tax reductions. The forestry and manufacturing sectors were already in big trouble before the current crisis.
We also believe that, since the Second World War, successive generations of Canadians, who live in the second largest country in the world in terms of surface area and who helped build the country and give it value, have accomplished a tour de force, especially given that today, the population is just over 30 million. However, in our opinion, the economy has been substantially destabilized over the past three or four years. That is our political argument.
Considering what I said to you earlier, even though I do not want to lead you down a political path, according to the way you see things, is it part of your written or assumed mandate to adopt a balanced approach? Despite the fact that you must make a profit, do you still try to help sectors that are important in a given province but that are in trouble, like the forestry and manufacturing sectors? Do you try to get things back on track to avoid job losses in these sectors, which have been so hard hit?
You'll have a chance for another round, Mr. Pacetti. Thank you.
I'm going to take the next Conservative round.
First of all, gentlemen, thank you very much for coming in and appearing before us and responding to our questions.
I did want to ask about the Canadian secured credit facility. Mr. Pacetti raised the issue of one company, Tricor, and we've certainly heard from a number of organizations and companies. One of the concerns raised is that the triple-A rating is too high. They're saying a double-A rating should be there, because while the offer is being made and the letters are being sent off, I think you said June 11, they won't actually be able to utilize the program because they won't have the triple-A rating.
I'm just wondering, Mr. Halde, if you can address that. If, for example, a double-A rating were accepted, what would be the difference in terms of assessment, in terms of associated risk level? How does it change from a triple A to a double A, and is BDC considering or would it consider that?
The entire world is in recession; there are really no exceptions to that. Growth has slowed everywhere, and so those risks have risen everywhere.
Generally speaking, people are more concerned to insure a receivable if it's in a developing country, as opposed to the United States; that's a general rule of thumb. It would be fair to say that the biggest increase has been on the U.S. side, because people are most concerned about the recession in the United States, and that's a very important destination for many of these exports.
Geographically, I don't think there's really much of a story there. Everybody is more concerned, and generally a company will ask us to insure their entire book of buyers. They could be spread all around the world.
Secondly, though, speaking sectorally, there are sectors that are in more difficult shape than others: the auto sector, the forestry sector. The forestry sector has been in recession much longer than everyone else, because the U.S. housing sector was the first part of this story. The auto sector came after that. The more generalized risk increase has been more recent. So sectorally there are leading edges, and similarly, on the way out probably the first sector to show strength will be the commodities sector. It's very common in upturns.
I'd like to discuss, Mr. Halde, your role or capacity as a traditional lender, with the recognition that there are some serious complaints that our big five just aren't filling the marketplace, even though they may have some capacity.
In particular—I'll just use one example, and I know that every colleague around the table has many examples like this in their riding—I'll take an auto dealership that has been in business for 20-plus years, blue chip all the way: always made money, never missed a payment, always on time, and in a financially great position. They carried a line of credit for $5 million; now the bank advises them to cut it immediately to $500,000. I ask you how many vehicles you can put on a lot for that.
Secondly, of course, they always required an additional, say, $100,000 just as a deposit to keep on file, and now they want that up to half a million dollars—of course, coincidentally, just the same amount as would match the line of credit that is offered. And of course, instead of the prime plus one or prime plus three-quarters rate they always enjoyed as a preferred customer, now it's prime plus five per cent. Quite frankly, the bank is saying to them, you're out of business.
That is happening across this country for those who are not tied to traditional sources such as a GMAC. But of course they don't take them, because they weren't a customer before; they were with a different company.
Do you have a role, or will you potentially have a role or a capacity to serve people like this, or do we have to wait for some particular point, until we come up with a new instrument or new vehicle? What are your thoughts on this?