Wednesday, March 24, 2010

Canadian budget has implications for the structured finance market

Original posted on Stikeman Elliott's web page by Mark E. McElheran

The 2010 Canadian federal budget was delivered on March 4, 2010. The budget contains a number of interesting developments and implications for the Canadian structured finance market.
CSCF ends amid signs of life in the securitization market
The budget confirmed that the Canadian Secured Credit Facility (CSCF) provided by the Business Development Bank of Canada (BDC) will, as originally contemplated, conclude at the end of March 2010. In the view of the federal government, the CSCF is having a positive impact on the availability and cost of financing for vehicles and equipment. BDC has posted details of completed transactions (all of which have been completed by way of public prospectus offerings) on the BDC website.

New financing initiative for equipment and vehicles
While the CSCF may be drawing to a close, the budget announced the creation of the Vehicle and Equipment Financing Partnership as part of the Business Credit Availability Program, which forms part of Canada's Economic Action Plan. This program will be funded and managed by the BDC with an initial allocation of $500 million in funding. The program is intended to provide financing for small and medium-sized finance and leasing companies. Further details are to be announced in the coming weeks. Hopefully this program, in conjunction with an increasingly vibrant securitization market, will provide a much needed boost to this sector.
Covered bonds
A number of Canadian banks have already entered the European and domestic covered bond market but news from the budget indicates that there may be increased activity ahead. The government has indicated that it intends on developing a legislative framework for the issuance of covered bonds in order to encourage investment and assist federally regulated financial institutions in diversifying their funding sources. There are no indications as of yet as to the anticipated timeline, but this is an encouraging sign for the covered bond market, which has a lengthy history in Europe but has only in recent years been accessed by Canadian issuers.

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