Export Development Canada (EDC) is a federal Crown corporation that helps Canadian exporters by lending them money or guaranteeing loans they might get from other financial institutions. The EDC and its domestic equivalent — the Business Development Bank of Canada (BDC) — are to play a significant role in the federal government's economic stimulus plan. These are, essentially, government-owned banks. So if regular banks and other non-bank lenders are giving money to businesses that need to invest and grow, then the pressure is on the government's banks to step in.
EDC and BDC, though, are self-financing Crown corporations. They can't just throw money at bad loans and watch their default rate skyrocket. And they say their staffs are working as fast as possible to get some new money given to them by Ottawa out the door and into the hands of entrepreneurs.
Consider this appeareance by Jean-René Halde, the CEO of the BDC, before the House of Commons Finance Committee. Haldé came under fire from MPs several times for, in their view, not springing into action to help ailing manufacturers. Consider this exchange with Liberal MP Massimo Pacetti. Pacetti concern was typical of complaints many MPs are getting. Note also Halde's reply about the risk profile of their typical client:
Pacetti: I have a constituent in the textile business who came in. They have been suffering for a number of years, but now things have finally turned around in their area. They're one of the few survivors. They're looking for additional financing. They have some firm orders because their facilities are in close proximity to the U.S. market. Here we have an example of a $100,000 loan where fees of $8,911 are being charged on an amount that was outstanding. It came to about $40,000.
I understand it's in special accounts, but there seems to be a problem. You are pretty well the lender of last resort, but you are treating people like you are a bank. I understand that you have to make money, but there doesn't seem to be a mechanism where people can come to the bank and say they want their case to be reviewed or have a second person look at it.
Am I missing something? If the business sector doesn't have the confidence that they can do business with you on the second round of these additional moneys to be lent through the business credit availability program, how am I going to feel at ease that you will be able to get that money out, not only to the right people, but efficiently and at a reduced cost?
Halde: Thank you. Let me try to address your question. First, we do price for risk. Our average client, by Standard and Poor's [credit rating], might be a B-; our best client would probably be a B+, and some of them would be CCC. We're dealing with a risky clientele, and basically we price for risk. At the end of that process, we're making a very minimal return on equity with that.
As I listened to Halde's testimony that day, I was struck by the fact, even on the House of Commons Finance Committee, there wasn't a very clear understanding what EDC and BDC do and what their operating parameters are. In other words, EDC and BDC have a PR problem. They need to be more visible; to tell Canadians (and MPs) what they're doing.
Well, lo and behold, the EDC at least is now putting out press releases calling attention to its role in helping Canadian manufacturers:
Here's the first grafs from a release this morning — note how the EDC is trumpeting new powers it received as a result of the budget. The business at hand here, New Flyer, is a bus manufacturer:
Export Development Canada (EDC) today announced that it has committed up to USD 40 million to participate in a USD 180 million dollar renewal of a syndicated facility for New Flyer Industries Inc. (New Flyer).
The transaction marks EDC’s first financing commitment under its new enhanced mandate to support domestic trade to help increase access to credit for Canadian companies. EDC’s new domestic powers came into effect on Thursday, March 12, 2009, with the passing of Bill C-10 by Parliament.
“EDC’s participation in this facility renewal for New Flyer is exactly what our new domestic powers were intended to accomplish,” said Eric Siegel, President and CEO of EDC. “This facility shows how EDC can complement the private sector to enhance capacity for domestic transactions that are creditworthy and supported by a viable business model, but for which companies are having a difficult time finding credit.”
And here's some more:
- EDC provides $1.6 million in financing to auto parts maker Maxtech
- EDC facilitates USD 35 million Canadian-Panamanian trade deal