On May 11, as part of the Government of Canada's COVID-19 Economic Response Plan, Prime Minister Trudeau announced plans to establish a Large Employer Emergency Financing Facility (LEEFF)1. The announcement recognized the key role larger enterprises play in providing jobs for Canadians and the need of many of those employers for support through the COVID-19 pandemic.
LEEFF will provide financing to large employers whose needs are not being met through conventional financing. It is intended to allow viable businesses to remain active, while positioning them to participate in a rapid economic recovery.
The Government of Canada previously announced liquidity support for small- and medium-sized businesses through the Business Credit Availability Program (BCAP) (covered here), and LEEFF addresses the gap which existed with respect to larger enterprises.
The LEEF program will be delivered by the Canada Development Investment Corporation (CDEV), in cooperation with Innovation, Science and Economic Development Canada (ISED) and the Department of Finance. The program will apply to all eligible sectors in a consistent manner, with a standard set of economic terms and conditions.
Details with respect to the administration of the LEEFF program (including application and evaluation processes) remain to be announced. However, the Government has outlined the following eligibility criteria and restrictions associated with funds provided through LEEFF:
Eligibility
- The LEEFF program will be open to large for-profit businesses—with the exception of those in the financial sector—as well as certain not-for-profit businesses such as airports, with annual revenues generally in the order of $300 million or higher.
- To qualify for LEEFF support, eligible businesses must be seeking financing of about $60 million or more and have significant operations or workforce in Canada.
Recipients must demonstrate how they intend to preserve employment and maintain investment activities.
Special requirements
- Recipients will need to commit to respect collective bargaining agreements and protect workers' pensions.
- Strict limits will be placed on dividends, share buy-backs and executive compensation.
- Recipients will be required to publish annual climate-related disclosure reports consistent with the Financial Stability Board's Task Force on Climate-related Financial Disclosures, including how their future operations will support environmental sustainability and national climate goals.
In evaluating applicants to the LEEFF program, the Government may also consider a company's employment, tax, and economic activity in Canada, as well as its international organizational structure and financing arrangements. The program will not be available to companies which have been convicted of tax evasion.
Analysis
The details of the LEEFF program that have been announced thus far are consistent with similar programs announced in the U.S. and are responsive to the ongoing public debate which existed prior to the COVID-19 pandemic around protecting taxpayers and government funds when support is provided to private sector companies.
In the U.S., the Coronavirus Economic Stabilization Act of 2020 (CESA) (discussed here), which was passed in response to the COVID-19 pandemic, requires recipients of financial support to observe financial and operational restrictions, including limiting dividends and share buybacks, caps on executive compensation, maintaining certain workforce and compensation levels, retaining U.S. jobs onshore and remaining neutral in union drives. Past instances of public support for private sector companies have been criticized where companies that received government/taxpayer funds engaged in employee reductions and executive compensation increases.
Considerations for companies
Companies planning to take advantage of the LEEFF program should consider the implications of, and be prepared to abide by, restrictions on dividends, share buybacks, executive pay, and the other special requirements noted above. Companies should also consider their broader corporate actions and circumstances, and how they are consistent with the principles underlying the LEEFF program.
The LEEFF program includes a requirement that companies participating in the program must publish annual climate-related disclosure reports. This requirement is consistent with the Canadian government's stated position and policies on climate change.
Companies will need to assess the reports and requirements of the Financial Stability Board's Task Force on Climate-related Financial Disclosures2 and their ability to comply with (and the implications of complying with) such disclosures.
While further details are yet to be announced, the expectation is that the LEEFF program can play an important role in supporting certain employers in withstanding the pandemic and subsequent recovery.
Footnotes
Originally published 14 May, 2020
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