(TORONTO) - April 9, 2009 - Export Development Canada (EDC) today announced that it expects to facilitate up to CAD 1 billion in domestic surety credit in 2009 through an agreement with Canada’s surety industry.
The agreement was undertaken after changes to EDC’s legislation as a result of the Government’s Budget 2009, in which EDC received a temporary two-year broadening of its mandate to undertake domestic financing and insurance. EDC’s domestic powers were enacted into law on Thursday, March 12, 2009.
“By providing re-insurance, EDC will complement the existing services of Canada’s surety industry to increase the amount of business they can provide to their customers,” said Pierre Gignac, Senior Vice-President, Insurance, EDC. “Since EDC’s partnership approach for export-related bonding has been in place for more than 20 years, our domestic mandate is a natural extension of our existing relationships.”
EDC will bring additional capacity to Canada’s surety companies by providing re-insurance on new transactions, helping to reduce the amount of capital required by surety companies to undertake new business. While EDC’s participation will be determined solely by market demand, EDC’s ability to facilitate up to CAD 1 billion in new domestic surety credit could support up to CAD 2 billion in contracts for Canadian companies.
Surety helps Canadian companies by providing a guarantee on behalf of their customers to the owner or buyer that the work in a given contract will be performed in the manner set out in that contract. Surety is most often used in the construction and professional services industries in Canada. With EDC’s re-insurance capacity, surety companies will be less likely to use their working capital to support transactions and can use that capital to undertake more business.
“The additional capacity which EDC is now able to offer the primary domestic surety underwriting companies by way of reinsurance will be well received in this challenging marketplace”, said Robert Dempsey, President of GNCA . “The capacity may well be used to meet the bonding requirements of our clients while maintaining our underwriting standards.”
EDC will work through the existing financial services networks that serve the Canadian surety industry, either directly through surety companies or indirectly with brokers. EDC will also undertake its support for the surety industry using current market practices for pricing and documentation.
EDC’s approach to the domestic market will be based upon the same underwriting structure that supports our bonding business model for exports. All EDC activity will continue to adhere to the Corporation’s existing credit standards and due diligence processes. Proposed transactions must be commercially creditworthy and be supported by a viable business model. The commercial solutions offered will be simple and user-friendly for the surety industry, and designed to ensure ease of withdrawal once EDC’s domestic mandate expires.
EDC’s approach to providing domestic bonding solutions will be anchored by the following guidelines:
- EDC will support non-exporters.
- EDC will consider all sectors.
- EDC will only facilitate new and incremental commitments. EDC does not intend to support existing surety bonds.
- EDC will only consider surety bonds and bank guarantees related to contract performance (including advance and progress payments, performance, labour and material, warranty and supplier payment guarantees).
To be eligible, companies must be an existing client of the surety that is seeking additional capacity from EDC. This measure will ensure that EDC’s presence in the market does not result in companies moving their business from one partner to another in order to obtain EDC support.
Further to this guideline, EDC will provide up to a maximum of 50 per cent risk sharing to our surety partners. The Canadian surety company must be willing to undertake a portion of the customer’s risk to qualify for EDC consideration.
The manner by which EDC will bring additional capacity to the domestic market reflects what the Government has asked EDC to do, discussion with and feedback from Canadian surety companies, and EDC's own operational considerations.
EDC has also been working with Canada’s private financial institutions and commercial insurance providers to develop more ways to work together to increase access to credit for Canadian companies.
EDC is Canada’s export credit agency, offering innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by more than 8,300 Canadian companies and their global customers in up to 200 markets worldwide each year. EDC is financially self-sustaining, is a recognized leader in financial reporting and economic analysis, and has been recognized as one of Canada’s Top 100 Employers for eight consecutive years.
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Media contact:
Phil Taylor
Export Development Canada
Tel: (613) 598-2904
Blackberry: ptaylor@edc.ca
