Ottawa’s $3.7-billion credit crisis bailout actually made money

Ottawa’s $3.7-billion credit crisis bailout actually made money

Barry Critchley | 12/11/13 | Last Updated: 12/11/13 6:32 PM ET
The Canadian Secured Credit Facility, one of the federal government’s key emergency responses to the global credit crisis, may be the most financially successful government program in recent history. The reason: every penny of capital that was provided has now been repaid and the government received market interest rates along the way. Accordingly, thanks to the receipt of the final payment in the past week, the book is closed on this bailout and taxpayers are more than whole.Over a few months from late 2009 to early 2010, the program advanced almost $3.7-billion in capital as a way of providing continued support for participants in the auto and equipment financing sectors.

At the time there were major blockages in the credit markets: the normal lenders weren’t lending and there was a widespread slowdown in day-to-day business. So the federal government stepped in, set up a $12-billion securitization facility that could be tapped under certain circumstances provided certain procedures were followed. The Business Development Bank of Canada was the main lender – though other lenders could, and did, participate on the same terms.

In time, five issuers did agree to terms. CNH Capital Canada Ltd. was the first. In December 2009 the agricultural and construction equipment business raised $300-million from the BDC at a rate of 150 basis over the yield on comparable Canada bonds. The funds were used largely by dealers within CNH’s network to purchase new and used agricultural equipment and parts pending their final sale to customers.

Julie Schlueter, manager of capital markets at CNH Industrial, said in an interview Tuesday that “the program was very beneficial to the Canadian market. The people running the program were very knowledgeable about the industry and what needed to be done.”

Schlueter, whose U.S. parent also tapped into an equivalent U.S. government program, known as the Term Asset-Backed Securities Loan Facility, added “we were happy to be the first borrower in the Canadian program.”

An executive from another borrower, who requested anonymity, said the program allowed us “to continue running the business and kept consumers going. Without the program, lending would have returned but it would have taken much longer.”

After CNH broke the ice, few weeks later GMAC Canada raised more than $1.26-billion from the BDC via the sale of auto-loan receivables-backed notes (with the proceeds used by GMAC Canada to extend financing to Canadian GM and Chrysler dealers and their customers to purchase or lease vehicles.) After that Fleet Leasing Receivables Trust raised $363-million, (of which BDC provided $91-million with other lenders providing the balance); Canadian Swift Master Auto Receivables Trust placed $1.7-billion in asset-backed notes with the BDC and used the proceeds to provide so-called floorplan financing.

Nissan Canada was the fifth borrower under the secured facility — but the first by a retail lease company. Nissan raised $660.9-million of which BDC provided $300-million.

BDC’s Paula Cruickshank, was one constant factor in managing the secured credit facility. Hired as vice-president of securitization, Cruickshank said Tuesday “we consider the program a good success. We were able to put the funds out to companies that needed when they needed it.”

And Cruickshank argued that other companies benefitted from “the pricing benchmark that we established, even if they didn’t participate.” Not wanting to pay either a too high or a too low yield, BDC bought securities in the market place “and we saw that other deals got done close to what we were offering. Our price was determined commercially.”