11^th May 2020

Sequeira Partners – Canada

Significant swings in the stock market. Interest rate cuts. Federal stimulus packages. Today we are facing volatility that is unprecedented. COVID-19 shutdowns and closures combined with the impact of the energy markets provide for a bleak economic outlook.

Yet amid the turbulence, two things remain certain:

1. Debt is prevalent in operating companies – many businesses use leverage in their capitalization structures, the extent to which varies greatly among owners.
2. Cash reserves and cash flow will be tested – the current economic environment is causing economic stress for many businesses, impacting current cash flows and future revenue expectations.

Today

Businesses are in survival mode. The Federal Government has moved to backstop financial institutions funding needs to prevent lenders from pulling back capital. For the most part, banks are aligned in helping their customers weather the storm and are actively implementing programs to address short term liquidity concerns.

The Big 6 banks have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such disruption of revenue and receivables collection due to COVID-19. Each financial institution has approached this differently but examples of measures in place include:

• Deferral of payment on small business credit cards and credit lines
• Business loan payment deferral
• Increases on small business operating lines to help with short-term working capital
• May advance payroll to ensure consistency of paying employees
• Waived fees

Three Federal programs, the Business Credit Availability Program (BCAP), the Small and Medium-sized Lean and Guarantee Program (SMLGP), and the Canadian Business Emergency Account (CBEA) have been announced to provide additional sources of capital for businesses that need it. Refer to Appendix A for additional details on the programs announced to date.

Business are scrambling to access the various forms of relief and banks are working hard to respond to the significant demand.

The original aritcle can be found here http://www.sequeirapartners.com/publications/capital-structure/

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