MNI POLICY: Canada Can Take 15% Stake in Large Borrowers

By Greg Quinn

     OTTAWA (MNI) - Canada's finance minister said Wednesday that large public

companies seeking emergency government loans to cope with Covid-19 may have to

give the government a 15% equity stake and an observer's seat on the board of

directors. 

     The money also can't be used for big dividends, share buybacks or executive

compensation, or to restructure firms, Bill Morneau told reporters in Toronto.

There is no cap on the cost of the program for firms with revenues of CAD300

million seeking at least CAD60 million in financing.

     The loans will be at a 5% rate for the first year, 8% in the second, and

rise further after that. Some 20% of the money is lent on a secured basis and

the government has the option for the equity stake and a board seat.

     "This will ensure that existing lenders share in the risk," Morneau said at

a press conference in Toronto. 

     Morneau is aiming to strengthen bailout terms following loans a decade ago

to GM and Chrysler that weren't fully repaid and still led to worker layoffs,

and its more recent purchase of the struggling TransMountain oil pipeline. The

timing is also far different, with aid for big firms coming well after the

creation of programs for laid-off workers and small business. 

     Companies must also "commit to minimizing the loss of employment and

sustaining their domestic business activities" according to a government

statement, and provide information on how they are fighting climate change.

     Morneau reiterated his focus is ensuring a resilient economy, when asked

about the potential for a big deficit this year to trigger a cut to Canada's

triple-A bond rating. 

     "The way to think about our credit standing is our starting point, which

was strong," Morneau said. Today's deficit spending "will leave us with a

stronger economy, and that strong economy is essentially what those rating

agencies look at to determine our ongoing health."

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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