COVID-19: Canadian Federal Government Financial Support for Large Businesses (LEEFF): Further Update | Practical Law

COVID-19: Canadian Federal Government Financial Support for Large Businesses (LEEFF): Further Update | Practical Law

This Legal Update provides a further update to the Large Employer Emergency Financing Facility program being created by the Government of Canada which is available to eligible Canadian for-profit companies and certain not-for-profit companies with annual revenues of $300 million or more.

COVID-19: Canadian Federal Government Financial Support for Large Businesses (LEEFF): Further Update

by Practical Law Canada Finance
Published on 20 May 2020 • Canada (Common Law)
This Legal Update provides a further update to the Large Employer Emergency Financing Facility program being created by the Government of Canada which is available to eligible Canadian for-profit companies and certain not-for-profit companies with annual revenues of $300 million or more.
This Legal Update provides a further update to the recent May 11, 2020, announcement of the Canadian federal government. On May 11, the federal government announced that it will be creating a Large Employer Emergency Financing Facility (LEEFF) to provide bridge financing to eligible large Canadian businesses with the goal of preventing otherwise viable businesses from becoming insolvent as a result of the 2019 novel coronavirus disease (COVID-19) and sustaining jobs, For our first update on the LEEFF program, see Legal Update: COVID-19: Canadian Federal Government Financial Support for Large Businesses (LEEFF).

The Program Is Open for Applications

On May 20, 2020, the Government of Canada announced that it is now accepting applications from eligible applicants and has provided further details about the terms and conditions of the loan.
Applications: To start the process, eligible companies will need to complete the online enquiry form and send it to [email protected]. Alternatively, interested applicants may send an email to [email protected] with the following information:
  • Name of business.
  • Headquarters address.
  • Description of business.
  • Business annual revenues (FY2019 results).
  • Number of employees.
  • Stock exchange symbol (if publicly listed).
  • Name of contact.
  • Title of contact.
  • Email address of contact (must be from the enterprise’s corporate domain).
  • Phone number of contact.
Only email addresses from the enterprise’s corporate domain will be accepted.
Thereafter, representatives from both the Canada Enterprise Emergency Funding Corporation (CEEFC) and Innovation, Science and Economic Development Canada will be in touch with further instructions. Companies will need to sign a non-disclosure agreement and complete an application form. At this time, there is no deadline for submission of applications as the process will be open "while the current economic situation persists".

The Credit Facilities

Some details are as follows:
Loan Amount. The minimum loan size will be for principal amounts of $60 million or more.
Purpose. The purpose of the loan is to provide short-term liquidity assistance to large Canadian companies who have been affected by COVID-19.
Nature of borrowing. The loan will be a non-revolving term loan that will be provided by way of an unsecured facility equal to 80% of the loan principal amount and a secured facility equal to the remaining 20% of the loan principal amount. The loan will be advanced in tranches over a 12-month period.
Term/Maturity. The unsecured facility matures in five years and the secured facility will mature at the same time as the applicant's secured credit facility with its existing lender.
Voluntary prepayment. The applicant may prepay the loan at any time without penalty.
Interest rate. The applicant shall pay interest as follows:
  • Unsecured loan:
    • First year: 5 % per annum payable quarterly in arrears (payable in cash or in kind);
    • Year 1 to 2: 8% per annum payable quarterly in arrears (payable in cash or in kind);
    • Year 2 to 3: 10% per annum payable quarterly in arrears (payable in cash);
    • Year 3 to 4: 12% per annum payable quarterly in arrears (payable in cash);
    • Year 4 to 5: 14% per annum payable quarterly in arrears (payable in cash).
  • Secured loan: same interest rate as per applicant's secured credit facility with its existing lender.
Warrants. Where the borrower is a Canadian public company or a private subsidiary of a Canadian public company, the CEEFC will receive warrants from the borrower enabling the CEEFC to purchase common shares in the borrower equal to 15% of the principal amount of the loan or cash consideration equal to the value of the warrants in lieu of the warrants. Private companies will provide additional fees to the CEEFC equivalent to the warrant value.
Positive covenants. Positive loan agreement covenants will include that the borrower must perform its obligations under pension plans and collective bargaining agreements (as applicable) and provide annual climate-related disclosure reporting and board observer status to the CEEFC.
Negative covenants. Negative loan agreement covenants will include restrictions on distributions to shareholders, such as dividends payable, capital distributions and share repurchases.