Loan program for Canada's biggest companies 'ineffective,' experts say

WATCH: Four months after the feds set up financial aid to help big companies during the pandemic, the Large Employer Emergency Financial Facility (LEEFF) remains unused. Mike Le Couteur explains why, and what critics say the government should focus on instead.

More than four months after the federal government announced its program offering emergency loans to the country’s largest businesses amid the novel coronavirus pandemic, none of the applications have been approved and no money has been allocated.

The Large Employer Emergency Financing Facility (LEEFF) was announced by the Liberals on May 11, as part of the federal government’s emergency economic response to the COVID-19 outbreak.

The loans, starting at $60 million, were to be made available to companies that employ large numbers of Canadians and have at least $300 million in annual revenue, to provide short-term assistance to help them weather the pandemic.

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On Wednesday, the ministry of finance confirmed it has received “more than a dozen” applications to the LEEFF so far.

But none have been approved.

“The Canada Enterprise Emergency Funding Corporation (CEEFC), a subsidiary of the Canada Development Investment Corporation (CDEV) formed to administer the LEEFF, is evaluating these applications to ensure they are in the best interests of Canadian taxpayers, while also securing the cooperation of existing creditors,” the email reads.

Global News reached out to more than 30 large companies in Canada to determine which had applied to the LEEFF.

Only one — Porter Airlines — confirmed it had submitted an application, and a handful of others said they were considering the LEEFF as an option.

Unifor national president Jerry Dias said the LEEFF program has been “ineffective,” adding that it was introduced too late into the pandemic.

A lot of the carnage had already been done,” Dias said. “Most employers had already laid off (employees) and made major, major cutbacks to their operations.”

What’s more, with LEEFF offering interest loans of five per cent in the first year, and eight per cent the following year, Dias said most large companies “have opportunities to grab capital elsewhere through commercial means.

“And so that’s what they’ve done.”

Benjamin Reitzes, director of Canadian rates and macro strategist at BMO Capital Markets, echoed Dias’s remarks, saying the pricing is “just not favourable enough to attract anyone to use the fund at this point,” and that it is really a “last resort for companies.”

He said the pricing is “quite punitive,” and comes with extra rules and conditions that could be “constricting” for companies.

“If you have any access at all to the capital markets, the rates charged are materially better,” he said. 

Dias said the government should instead focus its efforts on improving the Canadian Emergency Wage Subsidy program (CEWS).

“They should eliminate the problems with that program,” he said. “I think you’ll find that that is something that the employers will jump all over and frankly, it’ll make the LEEFF program irrelevant.”

As of Monday, the Canada Emergency Wage Subsidy (CEWS) program had received a total of 1,094,330 applications and had paid out $35.3B in subsidies.

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However, Reitzes said it’s “certainly possible” that the LEEFF program was created just for show.

“The primary intent may have been just to drive a little bit more confidence and just to show that the money is there, the government is willing to backstop firms if necessary, but only in the most extreme cases,” he said.

He said that was enough to provide a “sufficient amount of confidence to markets that they are now functioning or able or willing to function and lend money a little bit more freely” than they were in April.

In a statement, a spokesperson from the Minister of Innovation, Science and Industry said it is continuing to analyze “the specific pain points that COVID-19 is causing for all industrial sectors as they grapple with unprecedented financial difficulties during this crisis.”

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Airlines industry

Daniel-Robert Gooch, president of the Canadian Airports Council, which represents 54 airports around the country, said the pandemic has had “devastating” effects on the airline industry.

He said the council’s forecasts project airports are going to lose $4.5 billion in 2020 and 2021.

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“Just to keep the doors open, they’re anticipating having to take on $2.8 billion just for two years of additional debt to get through this crisis,” he said. “So they’re borrowing their way through the crisis.”

However, Gooch said LEEFF is “not really something that’s going to help out our airports,” adding that only four airports — Pearson International Airport, Vancouver International Airport, Montréal-Pierre Elliott Trudeau International Airport and Calgary International Airport — are eligible for the program.

Gooch also said airports could access better terms from private lenders.

“It’s like being in a fully functioning lifeboat,” he said. “They’re not going to, you know, get into a leaky inflatable.”

None of Canada’s largest airport authorities have applied for LEEFF.

Both the Greater Toronto Airports Authority and Aéroports de Montréal confirmed they had not submitted applications.

The Vancouver and Calgary Airport Authorities said they had not applied either, citing access to credit at lower rates elsewhere.

Global News also reached out to Canada’s largest airlines to determine if any had applied.

Porter Airlines said it has submitted an application “in order to better understand the terms available for loans under the program.”

However, the company said the talks are “currently inactive,” as it makes a “broader assessment” of its capital requirements.

“Discussions have not progressed to the point where potential approvals would be indicated,” a company spokesperson said in an email.

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In the company’s latest earnings call last week, Air Transat president Jean-Marc Eustache voiced his frustrations with the federal government’s response to the COVID-19 pandemic, saying he felt the airline industry has been ignored.

Eustache said the company is in “advanced discussions” to secure more financing, and he called on Ottawa to step in and offer targeted support to the airline and tourism sectors.

A spokesperson for Air Transat would not comment further on potential sources of financing, but did say that it was exploring LEEFF as an option.

Air Canada, Sunwing and WestJet did not reply to requests for comment on this story.

Automotive and transportation sector

Asked if they had applied to the LEEFF program, the majority of the largest automotive companies in Canada said they had not.

Bombardier said that while it is looking at “various options,” it is not considering LEEFF “for the time being.”

In an email, a spokesperson at General Motors Canada said the company did not seek funding through the program.

Honda said it has “no plans” to apply to LEEFF. Similarly, Toyota said it is “not a program we have considered.”

However, in an email, a spokesperson at New Flyer said it is continuing to explore all available programs “for their potential applicability to NFI and our employees,”

“But we are not in a position to comment on LEEFF specifically,” the email reads.

Fiat Chrysler Automobiles declined to provide comment for this story.

Requests were also sent to Ford, Magna International Inc. and Nova Bus Inc., but were not returned by time of publication.

Oil and gas

Speaking about the program in May, then-finance minister Bill Morneau said the LEEFF program “will be very important for companies in the energy sector.”

But a number of large Canadian companies in the oil and gas sector confirmed they have not applied to the LEEFF, including Canadian Natural Resources, CNOOC Petroleum North America ULC, Crescent Point Energy, Enbridge Inc., Imperial Oil, Shell Canada and Suncor Energy.

In an email, Cenovus Energy said it does “not provide details on our financing activities,” but that the company is in a “good financial position.”

Athabasca Oil, Husky Energy, Ovintiv and TC Energy did not reply to requests for comment.


Mountain Equipment Co-op said it “did explore the LEEFF program,” but determined it was “not a solution” for the company because it “could not meet all the pre-conditions.”

“Nor could the organization support the financial changes associated with the program,” a company spokesperson said in a statement.

Global News also reached out to e-commerce company Shopify to determine if it had submitted an LEEFF application, but the request went unanswered.

© 2020 Global News, a division of Corus Entertainment Inc.

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