Large Employer Emergency Financing Facility (LEEFF)
Frequently Asked Questions (FAQ)
As of July 10, 2020
This page outlines Frequently Asked Questions about LEEFF, which is being administered by the Canada Enterprise Emergency Funding Corporation (CEEFC), a subsidiary of Canada Development Investment Corporation (CDEV). Additional information on LEEFF, including the online enquiry form, is available on the CEEFC website at https://www.ceefc-cfuec.ca/home-ceefc/.
How will LEEFF applicants’ eligibility under the program be evaluated?
- Be a commercial entity incorporated under Canadian federal, provincial or territorial law;
- Generally have approximately $300 million or more in consolidated annual revenue;
- The applicant’s most recent annual or interim financial statements did not contain a going certain note or qualification (other than directly related to the current economic crisis) and the applicant was solvent as at December 31, 2019;
- has not made any filing, or had any filing against it, under the Companies’ Creditors Arrangement Act (CCAA) or any other bankruptcy or insolvency legislation;
- has a significant impact on Canada’s economy, either as a result of (i) having significant operations in Canada or (ii) supporting a significant workforce in Canada;
- the LEEFF loan facilities are required and the applicant will make reasonable commercial efforts to minimize the loss of employment, sustain its domestic business activities and the LEEFF loan facilities form part of its overall plan to return to financial stability;
- Must not be any of the following:
- a public institution, Crown corporation, public university, college, school or hospital;
- a union, charitable, religious or fraternal organization or entity owned by such organization (with certain exemptions);
- an entity where any individual holding Canadian political office owns 10% or more of such entity (on a direct or indirect basis);
- an entity that promotes violence, incites hatred or discriminates on the basis of sex, gender, sexual orientation, race, ethnicity, religion, culture, region, education, age or mental or physical disability; or
- any entity that has been convicted of tax evasion under any applicable Canadian federal or provincial law.
Applications must also be consistent with the objectives of the LEEFF program in the discretion of the Minister of Finance and are subject to a sectoral review by ISED. Applicants are also required to submit audited financial statements for review and a completed application form which requests a variety of information relevant to the applicant’s eligibility. CEEFC may also request additional information to help it assess the applicant’s eligibility. This information will be evaluated by CEEFC on a case-by-case basis.
How long will the process take from delivering the completed application to the first advance of the LEEFF Loan?
CEEFC is committed to reviewing each application and completing each transaction as quickly and as efficiently as possible. The timeline for each transaction will vary depending on the complexity of the borrower’s current debt structure, diligence complexity, intercreditor negotiations, review by the Departments of Finance and ISED, and other factors.
Is a LEEFF application binding? How long will the LEEFF program be available?
No. An application is the start of the process and allows CEEFC to consider an applicant’s eligibility without any commitment from the applicant.
LEEFF will be open while the current economic situation persists, permitting potential applicants to explore traditional market financing alternatives while LEEFF remains available.
Is there flexibility with respect to LEEFF’s interest rate and terms?
LEEFF is designed to provide essential liquidity for borrowers (other than those terms related to the secured portion as described below) in order to promote fairness, consistency and speed of administration. The terms include an interest rate schedule that is commercial in nature, encouraging businesses to seek private sector sources of liquidity where available. With respect to the unsecured portion of the loan, the interest rate is cumulative at 5% per annum payable quarterly in arrears. The interest rate will increase to 8% per annum on the one-year anniversary and will increase by a further 2% per annum each year thereafter. For the secured portion of the loan, the interest rate will be the same as the interest rate of the borrower’s existing senior secured debt.
Borrowers have the flexibility to elect to pay interest in-kind for the first two years of the loan to maximize liquidity. The loan will be advanced in tranches over 12 months to match liquidity needs and minimize borrowing costs. Borrowers that repay the loan within 12 months of initial advance will receive a 50% reduction in the required warrants or fees (as applicable).
Is there flexibility in drawing down the LEEFF loan? Does the borrower need to commit to take the funds?
The initial application is non-binding, and the upfront fee of 25 bps is well below typical loan arrangement fees. Furthermore, there is no obligation to draw down the full loan. These terms should enable borrowers to arrange a LEEFF loan and draw down only what is needed. In certain situations, the availability of LEEFF liquidity might encourage other lenders to advance new financing.
Can the LEEFF loan be repaid early without penalty? Are there incentives for early repayment of the LEEFF loan?
Yes. LEEFF provides flexibility to permit the early repayment of the loans without penalty. Unlike most commercial loans that cannot be repaid early or without penalty, LEEFF has no prepayment penalty and the warrant/fee is reduced by 50% if the loan is repaid in the first year. The overall cost of LEEFF financing is consistent with market financings for companies with similar credit profiles
Does LEEFF have flexibility to accommodate a borrower’s company-specific or sector-specific needs?
While economic terms have been standardized for fairness purposes, LEEFF is structured to accommodate sector- or company-specific borrowing requirements with regard to inter-creditor flexibility.
Does LEEFF require applicants to seek forbearance from, and share security with, existing senior secured lenders?
Yes. LEEFF requires that 20% of the aggregate loan amount be secured alongside existing senior secured facilities so that these lenders share risk with Canada and reinforce their commitment to eligible businesses. This requirement necessitates that existing lenders cooperate with eligible businesses to permit the LEEFF loan alongside existing debt. The amount of cooperation required will vary from applicant to applicant.
LEEFF accommodates some variation in terms (interest rate and payment, maturity, etc.) for the secured portion of the loan, so as to match the terms of the borrower’s existing secured debt and account for factors such as different types of collateral.
Can LEEFF loans be used to repay or refinance other borrowings?
No. Borrowers are prohibited from using the LEEFF loan to repay or refinance other borrowings, because the program is designed to provide necessary incremental liquidity to eligible Canadian businesses to assist with continued operations during the current economic situation.
Does LEEFF permit borrowers to continue funding capital projects and scheduled repayments of existing indebtedness?
A borrower may be permitted to use the LEEFF loan to fund expenditures with respect to existing or new capital projects if those capital projects are described in the application and approved by CEEFC on a case-by-case basis during the application process.
As noted above, the LEEFF loan may not be used to repay existing indebtedness; however, borrowers will be permitted to make scheduled repayments of existing indebtedness owing to third party lenders from cash sources other than LEEFF advances.
How does CEEFC intend to manage its potential equity interest in the subset of LEEFF borrowers that would be required to issue warrants to CEEFC?
LEEFF is not designed for the government to acquire or retain a long-term equity interest in borrowers; rather, the required warrants are designed to protect the interests of Canadian taxpayers by enabling Canada to share in the upside of the borrower’s expected business recovery. The warrants provide CEEFC with the option to purchase common shares “at the money” totaling 15% of the aggregate dollar amount of the LEEFF loan, which can compensate Canada in the form of either shares or equivalent cash consideration. In addition, borrowers have the right to repurchase the warrants at fair value within 15 days of repaying the loan, and those that repay the loan within 12 months of the initial advance will receive a 50% reduction in the required warrants.
Does CEEFC intend to appoint an observer to the board of each borrower?
While CEEFC would have the right to appoint a non-voting observer to the borrower’s board, the intent is to only appoint such observer in select circumstances where necessary to protect the interests of Canadian taxpayers given credit conditions of the borrower. The board observer would provide CEEFC with additional insight as to the borrower’s condition in order to protect taxpayer interests.
Does LEEFF require environmental commitments from borrowers?
Borrowers will be required to produce an annual climate-related financial disclosure report highlighting how their corporate governance, strategies, policies and practices will help manage climate-related risks and opportunities and contribute to achieving Canada’s commitments under the Paris Agreement and goal of net zero by 2050. The report should follow the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure, which provides clear direction on the required disclosure. The climate-related disclosure report is part of the ongoing compliance with LEEFF loan terms but not a pre-condition to be considered for LEEFF loans.
Does LEEFF impose additional restrictions on borrowers?
Yes. The terms of the LEEFF loans include restrictions on certain actions by the borrower, including the payment of dividends, repurchases of stock and limits on executive compensation. There are also certain restrictions on the use of the loans. These restrictions are intended to ensure that LEEFF loans are being properly used for the purpose of helping borrowers continue their operations until they can access more traditional market financing, that taxpayer interests are respected, and that the loans are repaid as promptly as possible. Borrowers are also required to perform their obligations under applicable collective bargaining agreements and existing pension plans.
For more information please consult the Factsheet here: https://www.ceefc-cfuec.ca/leeff-factsheet/