Canada: COVID-19 Access To Credit For Large-Cap Energy Companies
Energy Bulletin

Overview of LEEFF:

The federal government's aid has been threefold throughout the pandemic - keeping Canadians safe, supporting individual finances, and helping businesses. On May 11, 2020, Prime Minister Trudeau announced anticipated aid for large employers to finance their businesses during the pandemic: the Large Employer Emergency Financing Facility (LEEFF).

The government's support through LEEFF will be delivered by the Canada Development Investment Corporation, in cooperation with Innovation, Science and Economic Development Canada and the Department of Finance.

LEEFF fills a gap in aid available to large companies, across all sectors (with the exception of those in the financial sector), in providing bridge financing. To qualify, an eligible business must have annual revenues generally $300 million or higher, be seeking financing of about $60 million or more, have significant operations in Canada, and not be involved in active insolvency proceedings.

While we wait for further details, the federal government has provided a high level summary of several restrictions that will apply to any financing provided under this program. Specifically, eligible businesses will be subject to:

• strict limits to dividends and share repurchases;
• no "excessive" executive pay;
• continued pension commitments; and
• an obligation to publish annual climate-related disclosure reports, including how future operations will support environmental sustainability and national climate goals.

Additionally, LEEFF will not be available to companies that have been convicted of tax evasion.

Application to the Energy Industry:

Although specific details about the program have not yet been released, the energy industry has provided initial comments that they "welcome" the aid, and the Alberta government has indicated that it "appreciates" the announcement and will work with the Federal government to ensure these programs are "accessible, timely and efficient". The lack of a cap in financing by industry or by company was also a welcome feature of the LEEFF program as it has been suggested that the energy industry may require access to between $15 billion and $30 billion in cash to weather the COVID-19 storm.

Questions remain about whether large cap energy companies will need to demonstrate certain losses in revenue in order to qualify for LEEFF, whether assessments of employment, tax, and economic activity in Canada will be mandatory, and how companies will be required to show their commitment to environmental sustainability and national climate goals.

In respect of the latter requirement, the federal government has reiterated its continued commitment to the environment ¹ by linking the LEEFF program and an eligible company's climate and sustainability goals. It remains to be seen what will be required of energy companies to demonstrate their adherence to this requirement, but it is not anticipated to present an insurmountable challenge as many oil and gas companies are already obligated to report on their environmental goals as part of their public disclosure requirements.

We will update this bulletin as soon as the federal government releases more information about LEEFF.

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