As part of its ongoing provision of liquidity to support the functioning of the market for private sector securities, on 23 February 2009 the Bank of Canada announced a proposal for a new Term Purchase and Resale Agreement Facility for Private Sector Instruments (PRA). The proposed new facility will, for the first time, include eligible corporate bonds and will replace the existing Term Purchase and Resale Agreement Facility for Private Sector Money Market Instruments.
The Bank will seek the views of market participants on this proposal through consultations to be conducted the week after the announcement. Final details, including the schedule of operations to be conducted up to June 2009, will be announced following the completion of this consultation process.
It is proposed that the eligible securities for transactions under the new facility will consist of Canadian-dollar denominated:
Bankers' acceptances and promissory notes, including those of foreign issuers, (maximum term, 364 days) with a minimum issuer credit rating of:
R1 (low) by the Dominion Bond Rating Service (DBRS);
A-1 (mid) by Standard and Poor's (S&P); or
P1 by Moody's Investors Service (Moody's).
Commercial paper, including that of foreign issuers, (maximum term, 364 days) with a minimum issuer credit rating of:
R1 (low) by DBRS;
A-1 (mid) by S&P; or
P1 by Moody's.
Asset-backed commercial paper of eligible programs, with a minimum of two credit ratings that are at least one of:
R1 (high) by DBRS;
A-1 (high) by S&P;
P1 by Moody's; or
F1+ by Fitch Ratings.
Corporate bonds with a minimum long-term issuer credit rating of:
A (low) by DBRS;
A- by S&P; or
A3 by Moody's.
The Bank of Canada has indicated that securities issued or guaranteed by affiliates are not eligible, with the exception of bank-sponsored ABCP that has met the Bank of Canada's criteria. Margins will be the same as those used in existing term PRA operations. Depending on the term to maturity of the operation, participants may have the right to substitute the securities underlying the transaction on specified dates.
The Bank of Canada has also stated that consideration will be given to extending eligible securities for all Bank of Canada term PRAs to include corporate bonds with a minimum rating of BBB and term asset-backed securities (ABS) in due course.
In announcing this proposed new facility, the Bank of Canada has stated that it will continue to provide exceptional liquidity to the Canadian financial system as long as conditions warrant.
On 23 February 20090, the Canadian Government launched a consultation on how to best implement the Canadian Secured Credit Facility (CSCF). Responses from interested parties are due by 6 March 2009.
The CSCF was announced in the budget introduced to Parliament on 27 January 2009 (see Canadian Government publishes proposed budget for 2009 fiscal year (www.practicallaw.com/7-384-8662)), with an allocation of up to CDN$12 billion to purchase term asset-backed securities (ABS) backed by loans and leases on vehicles and equipment.
The consultation paper states that the CSCF is intended to ensure continued access to financing for the purchase and leasing of automobiles, capital equipment, medical equipment and other similar assets. The inclusion of specific reference to capital equipment and medical equipment is a new development.
The Government maintains that the facility will be priced on commercial terms to minimise the risk to taxpayers.
The Department of Finance and the Business Development Bank of Canada (BDC) will jointly proceed with the consultation process with potential participants and interested stakeholders on aspects of the CSCF. The CSCF will be managed by BDC and administered within parameters jointly developed by the Department of Finance and BDC following the consultation process.
The Government is seeking comments on several aspects of the facility, including:
What structure would best facilitate the restarting of the term ABS market in Canada.
How purchases should be priced.
How funds should be allocated among eligible participants and different categories of ABS.
Further details on the consultation and the structuring of the CSCF are available on the BDC's website.
