Canada’s export credit agency on Wednesday said it would backstop loans to hard hit oil and gas producers, in the latest move by Ottawa to free up credit for the struggling energy industry.Banks are reviewing borrowing limits in the sector and could head off bankruptcies of small and mid-sized energy firms pummeled by the collapse in oil prices.
Canadian banks have eased some lending standards but are expected to chop credit lines as they recalculate energy companies’ borrowing bases to account for a 75% drop in U.S. oil prices since the start of the year.
The “dramatic fall in prices will force borrowing base redeterminations downwards, in some cases, below the level where current facilities are drawn,” Export Development Canada (EDC) said in a slide presentation, dated April 17, that was seen by Reuters.
Under the program, the agency will backstop up to 75% of a bank loan, to a maximum of C$100 million, for at least one year, the document said.
“EDC will provide an incremental guarantee of over and above the (banks’) borrowing base to partially mitigate the current oil prices,” it said.
The program is targeted at Canadian companies that pump 100,000 barrels of oil equivalent per day or less, according to the presentation.
Small and mid-sized oilfield service companies and firms that ship, process and store oil and gas would also be eligible, EDC spokeswoman Jessica Draker said.
EDC does not have an estimate of how many companies the program would reach, she added.
“The immediate focus is on bringing liquidity into the market in order to manage these acute, short-term challenges that companies are facing during the crisis,” she said.
Banks are more likely to maintain credit lines with EDC support in hopes that oil prices recover, said Raymond James Ltd analyst Jeremy McCrea.
Canada on Friday said it would offer commercial loans worth between C$15 million to C$60 million to producers through the Business Development Bank of Canada, in addition to C$2.5 billion ($1.8 billion) in aid to help the industry weather impacts of the new coronavirus pandemic.
Alberta Premier Jason Kenney has estimated the need for liquidity in the sector at C$15 billion to C$30 billion.
Canadian Finance Minister Bill Morneau on Friday said more needed to be done to ensure large businesses had access to credit, and promised details soon.
Share This:
You can read more of the news on source
