Originally published in Blakes Bulletin on
Securitization, February 2009
As part of its January 27, 2009 budget announcements, the
Canadian federal government has announced the creation of a
C$12-billion Canadian Secured Credit Facility for the purchase of
term asset-backed securities (ABS) backed by loans and leases on
vehicles and equipment. The program, likely to be similar to the U.
S. government's term asset-backed lending facility (TALF), is
aimed at supporting "financing for vehicles and equipment for
consumers and businesses, large and small."
At this point, few details are available, but here are some
things we do know.
Firstly, the government says that "This facility will be
priced on commercial terms, and will therefore be expected to
generate a positive return for the government." At the same
time, it is clear that the whole purpose of the facility is to
kick-start the availability of reasonable financing in these areas,
so the pricing set by the government will need to be low enough to
actually achieve this.
Secondly, so far only federally regulated financial
institutions, and provincially regulated financial institutions who
are approved by the federal government, are eligible to sell into
the facility. Other entities interested in the facility may also be
able to become eligible by working with the Canadian Office of the
Superintendent of Financial Institutions. The Globe and
Mail has reported finance officials to have said that auto
makers' finance arms will have to commit to becoming federally
regulated institutions in order to qualify for the program.
Thirdly, the facility accommodates ABS backed by both loans and
leases, and relating to both vehicles and equipment.
Fourthly, the Business Development Bank of Canada (BDC) will be
the designated federal agency to administer this new facility.
Additional details on the proposal will be required on a number
of fronts. Among other things, it is unclear how a typical
securitization structure involving a "true sale" of the
assets to a conduit, and the issuance by the conduit of the
relevant ABS, will fit into all of this. Does the ABS in fact have
to be issued by the financial institution in order to be eligible
for sale to the government or, for example, can it be issued by a
conduit sponsored by that financial institution? Similarly, can the
financial institution (or its conduit) buy the leases and loans to
be securitized from some other type of entity or must it originate
As well, it is unclear how this facility will be divvied up
among eligible institutions – will it be a first-come,
first-served situation or will some more equitable method be
applied to make sure all industry participants have access?
The Canadian Finance and Leasing Association has reported in its
Member Alert that officials at the Ministry of Finance and BDC will
work on a basic framework for this facility. Input from relevant
stakeholders will be sought before the package is finalized.
Although most of the details remain to be worked out, it is
clear that we have an important vote of confidence in the Canadian
securitization industry that should provide significant stimulus to
the vehicle and equipment leasing and financing industry.
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