Only a dozen companies have applied for the Ottawa Emergency Loans for Large Employers program since its launch in May, two of which have so far been approved.
Is the program a failure or is it doing what it was designed to do, which is to act as a loan of last resort program? Experts say it is the latter, which then raises another question:
If some of the sectors most affected by the COVID-19 pandemic – including hospitality, tourism, and aviation – cannot or cannot apply to the Large Employer Loan Program, what kind of help financial 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 “an important form of liquidity support that all Canadian businesses can apply for,” when it is called up. asks about financial aid to airlines.
Announced in May, the LEEFF program would provide a loan of at least $ 60 million to the nation’s largest employers – those with annual incomes of over $ 300 million and whose financial needs during the COVID-19 pandemic do not are not satisfied with conventional financing.
Five months later, only two companies have secured a loan under the program, as large employers suffering massive losses from the pandemic, including airlines and airports, continue to balk at a loan program that has been criticized as being too expensive and impractical.
LEEFF loans start with an interest rate of 5%, which increases to 8% the following year. They would also allow the government to take a stake in public companies and would require, among other things, restrictions on executive compensation.
“We’ve been saying since at least May that LEEFF is just a non-factor for airports,” said Daniel-Robert Gooch, Chairman of the Canadian Airports Council.
“Airports already have access to credit at advantageous rates. The problem is not access to credit. The problem is the debt.
With revenue losses of around $ 4.5 billion expected in 2020 and 2021, airports across the country plan to incur additional debt of $ 2.8 billion during this period, Gooch said, but with limited options to increase income, with air travel remaining largely limited.
Among other proposals, the council urged the government to extend rent relief for airport authorities for at least three to five years until air passenger traffic can return to normal.
Paul Boothe, former senior federal industry deputy minister, said the fact that there have been few LEEFF takers is not a sign the program is not working.
“This is exactly how it’s supposed to work. Basically it’s supposed to be for companies that can’t get private sector funding, ”he said.
“I think it was a good idea to put this program in place… I never thought that adoption would be more than a small number of companies and I don’t think it should be.
Benjamin Reitzes, Canadian rate and macro strategy strategist at BMO Capital Markets, said the high interest rates and restrictions would have been linked to LEEFF because it was designed to be a loan program of last resort, which also means that “it is not an attractive financing facility by any measure.
“It’s hard to see this as a realistic option until there is no other option.”
Nonetheless, the program was raised by the government as an option for airlines demanding federal aid. Some are looking at it.
Porter Airlines said it asked LEEFF to learn more about the terms, but was considering applying for a loan. An Air Transat spokesperson told The Star that the airline “is considering LEEFF and (evaluating) currently whether it would meet our needs.”
WestJet said it did not submit a request, while Air Canada did not return multiple requests for comment.
Canada’s National Airlines Council, which represents most of the major airlines, urged Freeland in a letter in August to move beyond LEEFF in favor of developing a sector-wide approach, which should include loans. low interest rates, loan guarantees or direct government assistance.
“Our overall position… is that LEEFF was not intended for an industry which is still at stage zero seven months later, and which has no line of sight on when it can move from stage zero, whereas d other sectors of the economy have evolved. Chairman and CEO Mike McNaney told The Star.
The Canadian Union of Public Employees, which represents about 15,000 flight attendants, said any direct government assistance must be accompanied by a public interest in business – an idea the government is considering, but the board of airlines do not support.
(The office of Transport Minister Marc Garneau said on Friday that finding solutions for the airline industry is a priority.)
Two companies have so far been approved for a LEEFF loan, while a “number of other” applications are under consideration, according to the Canadian Development Investment Corporation.
The first company, Gateway Casinos & Entertainment Limited, which owns properties in British Columbia, Alberta and Ontario, received $ 200 million in cash on September 25. The loan allowed him to begin bringing back employees when his properties reopened, according to a joint release of 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 British Columbia-based producer and exporter of steel coal, had access to $ 120 million in cash this week.
“The pandemic has limited access to capital from more traditional sources, so we applauded the government’s decision to offer fair and accessible financing programs to large employers like Conuma,” said the president of the company, 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 amending LEEFF to make it more flexible and more open to negotiation, Ben said. Brunnen, Vice President of Finance and Economics. policy of the Canadian Association of Petroleum Producers.
“The challenge with LEEFF is that we were looking for the government to step in and provide short-term relief in the midst of a crisis and they came up with LEEFF, which had fairly significant restrictions initially, and immediately deterred business to have an interest in pursuing it, ”he said.
“We think it would make sense to have LEEFF modified so that it can actually provide support in case companies find themselves in dire economic circumstances.”