Fintech OnDeck Canada lines up $50-million credit facility from Crédit Agricole

It may not be a first for the domestic fintech industry, but it is a first for a U.S. fintech company that’s been operating in Canada for the past four years.

OnDeck Canada, the local online arm of the U.S. headquartered OnDeck now has a $50-million asset-backed credit facility, provided by Crédit Agricole, to fund its loans. According to a recent ranking of assets, the French bank is the world’s ninth largest. Its Montreal office offers commercial and investment banking services.

This is the first time that OnDeck Canada — which has originated $180 million in small business loans since 2014, all made using a “wide spectrum of data, technology and analytics” — has arranged funding from a source other than its parent.

“We are very excited that Crédit Agricole sees a lot of value in the Canadian economy, in Canadian small business and finds our mission attractive enough for them to participate in,” said Amar Ahluwalia, OnDeck’s vice-president of Partnerships & Capital Markets. We were unable to reach Crédit Agricole for comment.

There are two parts to the three-year facility that will finance loan originations created by OnDeck Canada: a $25-million committed facility and an extra $25 million that can be drawn if needed. OnDeck provides term loans up to $250,000 and revolving lines of credit of up to $50,000 to small business

The credit facility organized for its Canadian unit coincided with an A$75-million facility for its Australian unit. (Credit Suisse is providing that facility.) Both facilities come with a floating rate and a 5.6 per cent interest rate.

But the unsecured loans made to OnDeck’s small business clients don’t come cheap, with interest rates above those of credit cards. Ahluwalia wouldn’t provide a number but said it’s based on the “credit profile of the borrower. We are looking to serve the underserved.”

Colin Kilgour, one of the principals behind the $30-million KiWi credit fund, said the “challenge” in pricing such loans is “not putting your customers out of business (by charging too high rates) and putting yourself out of business (by charging too low rates given the defaults.)”

Other Canadian fintech companies have benefitted from links with a financial partner. In March, Purpose Financial (in which OMERS has a stake) acquired Thinking Capital Financial.

And there’s talk a large Canadian bank is set to sign a joint venture with an online lender that focuses on venture debt lending.

Going Green

The City of Toronto’s 30-year, $300-million inaugural green bond financing that’s set to close on Aug. 1 brought three thoughts to mind:

Dark vs Light: This distinction refers to the degree of greenness of the investors with dark green being those institutions that have set up a mandate that allows them to only invest in green bonds. Light green is used to define investors who have signed the United Nations-supported Principles for Responsible Investment (UNPRI).

But according to Oslo-based CICERO, the Centre for International Research, there are two other categories of green: medium and brown (for projects that don’t meet the wider goal of a low-carbon future).

Term: Toronto borrowed for 30 years, the same as the City of Ottawa, a reflection of the infrastructure projects (subways and light rail) that will receive the proceeds. A 30-year borrowing is considerably longer than the term of a green bond issued by either a corporate or a government.

Lookback: While all the proceeds are invested in projects that meet the issuer’s debenture framework, in some cases the issuer is also allowed to apply permanent financing to green projects that are being built. Known as a lookback, this arrangement allows the issuer to put green money into green projects. Normally there is a time limit on how far the issuer can do a lookback.

Financial Post

bcritchley@postmedia.com

 

Canada to miss deadline that would have allowed it to quickly resell Trans Mountain pipeline

There are about a dozen parties interested in the Trans Mountain oil pipeline, but the Canadian government won’t reach a deal to flip it before a marketing deadline with Kinder Morgan Inc. closes Sunday, according to people familiar with the situation.

The government’s $4.5 billion (US$3.4 billion) purchase of the pipeline and expansion project included a six-week window, to July 22, to co-market the pipeline with an eye to selling it to a third party. A quick sale would have effectively allowed the government to substitute in another buyer for the current deal to be finalized.

That deadline Sunday is set to pass. The deal will be finalized with the government as the new owner, and it will seek a new buyer without Kinder Morgan’s help, amid fears of legal and political delays. About a dozen parties have signed non-disclosure agreements as part of the process for a potential resale, and the project is seen likely to end up being bought by a Canadian-led consortium, as opposed to a single buyer, the people said.

The Trans Mountain sale is scheduled to close in either the late third quarter or early fourth quarter, as the project faces continued opposition from the British Columbia premier and awaits a key court ruling. Kinder Morgan’s Canadian unit didn’t respond to a request for comment. A spokesman for Finance Minister Bill Morneau declined to directly say if there’d be a sale to a third party by July 22, but said the government won’t hold the pipeline forever.

No ‘Rush’

“We have no interest in being a long-term owner of a pipeline, but we will be the temporary caretaker,” spokesman Daniel Lauzon said by phone, when asked about a sale. “We won’t rush that.”

Finding a third-party purchaser by the Sunday deadline would be difficult because the obstacles that Kinder Morgan cited in its threat to abandon the project still exist, said Kevin McSweeney, a fund manager at CI Investments in Toronto. British Columbia has given no indication it will drop efforts to impose additional regulations on the pipeline, and a court case over the project is still under way, he said. Third-party purchasers are likely to be attracted to the pipeline once those issues are resolved, he said.

“A buyer would be reluctant to take it on for the same reasons that Kinder decided not to go forward,” said McSweeney, who helps manage $13 billion.

“Perhaps someone would be willing to purchase the project at a big discount, but I doubt the government would want to lock in a loss given the political acrimony this file has generated.”

High-Stakes Negotiations

Canada’s purchase of Trans Mountain deal was announced on May 29, and the government has already been marketing the pipeline. A regulatory document filed by Kinder Morgan this month has offered a glimpse of the high-stakes negotiations that led to the pipeline essentially being nationalized as Kinder balked at the political landscape.

On March 6 — a month before it suspended work — the company asked for clarity from the government and for a financial backstop arrangement. Talks carried on that month, with the company proposing the government “take specific legislative and executive actions” and agree to a backstop to “indemnify” the company for all expansion costs if it ever abandoned the project. In exchange, the government would have received an option to buy a 5 per cent stake in the pipeline for a “nominal consideration.” The government expressed willingness to provide a backstop “subject to numerous conditions,” while the company “emphasized the urgency of the matter.”

The company suspended all non-essential work and spending on April 8. Two days later, government representatives “raised the possibility” of buying a 51 per cent stake in the pipeline.

The Canadian government’s $4.5 billion purchase of the Trans Mountain pipeline and expansion project included a six-week window, to July 22, to co-market the pipeline with an eye to selling it to a third party.

Kinder Morgan then floated the idea of a 100 per cent sale, and on April 30, the company proposed a price of $6.5 billion for the assets, including the existing pipeline and the expansion project.

The government responded on May 8 by presenting two alternative proposals. The first, which the government preferred, was for the company to proceed with construction relying on a government backstop. The second was to bundle the assets — with the government guarantee — and try to find a buyer. Under that proposal, if a sale couldn’t be arranged, the government would buy it for $2.3 billion plus an unspecified share of C$1.1 billion in capital spending so far.

The next day, the board unanimously rejected the proposal, and the day after that, on May 10, Kinder Morgan CEO Steven Kean told Morneau by phone the proposed backstop “was unacceptable to the company because it did not provide certainty with respect to the ability to construct through B.C.”

Talks continued. On May 22, the government offered $3.85 billion, a figure based on an analysis by its financial advisers, Greenhill & Co., and suggested the deal close in December. The company thought that’d be too long.

On May 23, the company countered at $4.5 billion, which after capital gains taxes would be $4.2 billion. After a break of several hours, the government agreed on certain conditions, including the 6-week marketing window that elapses on July 22.

Bloomberg.com

FX trader put on ‘naughty step’ by RBC wins dismissal case in London

A former Royal Bank of Canada currency trader who was “put on the naughty step” and eventually fired after making repeated complaints about lapses in the lender’s compliance procedures won his London unfair-dismissal lawsuit.

John Banerjee said in an interview that RBC promoted a culture of “indolence” where employees failed to sufficiently read through policies and when he pointed the fact out to senior managers, it lost him his job. The lender blamed his lack of punctuality.

The bank’s culture was one of “indolence, frankly, and a feeling of arrogance,” Banerjee said, adding that RBC simply wasn’t concerned with ensuring internal compliance with the rules. “Was I unusually zealous in doing this? Well it turns out yes, I was very unusual.”

The trader will learn the size of his compensation at a further hearing in December. RBC, which fired Banerjee in August 2016, saying he repeatedly turned up late for work, said it would appeal the ruling.

‘Box-Ticking’

Banerjee said RBC’s compliance culture didn’t go beyond a “box-ticking” exercise, that allowed employees to sign off on policy documents having barely read them. Pointing out a broken link to an internal policy document placed him on “the naughty step,” he said. RBC failed to undertake a proper investigation and shut Banerjee’s complaint down, Judge James Tayler said in his ruling.

“The bank’s actions thereafter were the opposite of their fine, but empty, words,” Tayler said.

RBC said in a statement today it encourages a “robust compliance culture which includes promoting the freedom for employees to speak up and blow the whistle.”

Whistle-blowing claims are frequently added to U.K. employment tribunal lawsuits to overcome an 83,700-pound (US$109,000) cap on compensation for wrongful dismissal. Awards are normally limited to that amount unless a former employee can prove they were the victim of discrimination or had made a public-interest disclosure. The charity Whistleblowers U.K. was supporting Banerjee’s case.

The Financial Times reported on the ruling earlier.

Banerjee “is dogged in the extreme and, on occasions, chose the wrong battles to fight. No doubt, he was a thorn in the side of his management,” Tayler said in his ruling. “Most people choose to stay silent when something is wrong, as they want a quiet life. Those who blow the whistle must have remarkable and, at times, exhausting determination.”

“I have been applying for jobs,” Banerjee said. “And it’s quite clear rather like whistleblowers in any industry, but particularly in finance, I’ve been told that I won’t be touched with a bargepole. My career as it was, unfortunately, is over.”

Bloomberg.com

Regulatory review reveals more problems with companies’ disclosure

Almost one-fifth of the 840 companies whose continuous disclosure was reviewed by Canadian regulators in the year ended March 30, 2018, were forced to re-file something.

The percentage of firms told to re-file rose to 18 per cent from 13 per cent in fiscal 2017, according to a report issued by the Canadian Securities Administrators on Thursday. Though there were fewer companies reviewed in the most recent year, the number required to make a re-file of some of their disclosure still rose.

In addition, eight per cent of firms reviewed were referred to enforcement or added to cease trade and default lists in 2018, up from six per cent the year before when 1,014 firms were reviewed.

In each of the past two years, about 80 per cent of the reviews were “issue oriented,” targeted to “a specific accounting, legal or regulatory issue, an emerging issue or industry, implementation of recent rules or on matters,” where regulators say they believe there may be “a heightened risk of investor harm.”

Reviews can also be triggered as a result of general monitoring through news releases, media articles, or complaints, the CSA said.

An issue that has been and remains a concern for regulators is the use of non-GAAP (generally accepted accounting principals) financial measures, particularly by real estate firms and on the websites of companies in other sectors.

The use of such measures, along with proper disclosure of what’s being done, can help explain changes in performance, cash flows or financial condition.

However, the regulators have tracked “increased prevalence … where the stated purpose and usefulness of the measure is unclear and fails to align with the natures of the adjustments that are being made.” This, along with a lack of clear disclosure about what’s being done, has the potential to leave investors “confused or even misled.”

Regulators say non-GAAP measures are not supposed to be the primary focus of companies’ website content or “key messaging” to investors in corporate presentations, investors fact sheets, news releases or on social media, but many firms continue to “give excessive prominence to the NGMs (non-GAAP) measures.”

In some cases, a “less favourable” generally accepted accounting measure “is not presented or discussed, or is disclosed in a less prominent location,” the regulators say.

The report notes that the use of non-GAAP measures is prominent in the real estate sector. Several issuers don’t provide adequate transparency about various adjustments being made to arrive at their non-GAAP measures, such as adjusted funds from operations (AFFO), particularly when the adjustments are management estimates.

“For example, adjustments for maintenance capital expenditures are often not explained in sufficient detail,” the CSA report says.

The regulators looked at companies’ continuous disclosure contained in various documents and other investor communications including financial statements, management discussion and analysis, technical mining reports, news releases, and social media.

“The volume of disclosure filed does not necessarily equate to full compliance,” the report noted.

• Email: bshecter@nationalpost.com | Twitter:

Detour Gold warns of ‘fire sale’ in clash with Paulson, as analysts speculate on possible buyers (maybe Barrick)

Paulson & Co., the U.S. hedge fund that won worldwide recognition for its correct bets on the U.S. housing market prior to the global financial crisis, isn’t backing down in its fight against the management of Toronto-based Detour Gold Corp.

On Thursday, Paulson & Co. announced it plans to call a special shareholder meeting by no later than July 28, when it will ask the rest of the company’s shareholders to oust “a majority” of the company’s board of directors.

The announcement followed a contentious exchange between the two companies a day earlier, in which Detour denied receiving any purchase offers, prompting Paulson & Co. to release an email it said the company’s interim chief executive Michael Kenyon sent that appeared to show otherwise. Paulson & Co. said a lawyer representing Detour on Wednesday threatened litigation against the hedge fund.

“Detour’s management and directors appear intent on using the company’s resources to engage in meritless litigation strategies,” Paulson & Co. wrote in a press release to shareholders on Thursday.

As one of the largest institutional investors in the company — it owns more than five per cent — it is entitled under Ontario securities laws to requisition a special meeting of shareholders.

Starting last month, Paulson & Co. began suggesting it would seek to replace Detour’s board, accusing the company of underperforming its peers and ignoring buyout offers from other mining companies.

Detour’s flagship mine is located in northwestern Ontario, and is expected to produce more than 600,000 ounces of gold per year for another two decades — likely ranking it among the dozen or so largest gold mines in the world.

But its chief executive Paul Martin resigned in May after failing to obtain an expansion permit for the mine, and cutting production goals and raising costs.

On Wednesday afternoon, Paulson & Co stated it received an email last week from Detour’s interim chief executive Kenyon stating a mining company is interested in purchasing the company.

Detour shares rose as much as 13 per cent on Wednesday, but were trading down just under 1 per cent to $13.8 per share on Thursday on the Toronto Stock Exchange.

Several hours later, Detour issued a press release saying it has not received “any offers to purchase it shares,” and that it has asked the Ontario Securities Commission to investigate Paulson & Co.’s unlawful behavior.

Escalating the tit-for-tat, hours later, Paulson & Co. released the email, in which Kenyon purportedly wrote that a company had “expressed a renewed interest in Detour and possibly making an offer for the company,” and asked Paulson & Co redact the name of the company in the publicly released version of the email. That has only fuelled speculation on which companies could purchase Detour.

CIBC Capital Market analysts on Thursday published a note ‘Who Could Devour Detour?”, which speculated that neither Agnico Eagle Mines Ltd, Kirkland Lake Gold Ltd nor Newmont Mining Corp. would be interested in such an acquisition.

On the other hand, Barrick Gold Corp., Goldcorp Inc. and Newcrest Mining Ltd. are all well-positioned to acquire such a large asset, the CIBC analysts wrote.

“Newcrest has expressed a goal of owning five tier-one ore bodies by 2020 and Detour could fit the bill, but the lack of mining experience in North America is an impediment,” the CIBC analysts wrote.

On Thursday in another press release, Detour wrote, “As for Paulson’s threat of running a proxy battle, we have heard this for many months now. If they choose to proceed, shareholders will have a stark choice — a fire sale by a U.S. hedge fund versus an experienced team.”

• Email: gfriedman@nationalpost.com | Twitter:

Toronto goes green, raises $300 million and saves on interest by doing so

Toronto has become the second Canadian city to issue a green bond.

And for the citizens of the country’s largest metropolis, the 30-year, $300-million transaction brings a financial benefit: the yield (3.213 per cent based on a 3.20 per cent coupon) required to clear the market was a tad lower than what a traditional debenture would have cost.

The city has determined that savings of about $600,000 (in present value terms) resulted from the green financing, the proceeds of which will be used for “core and supporting infrastructure for sustainable and clean transportation.” Subway and light rail transport projects will get most of the proceeds.

The city’s savings estimate agrees with an analysis done by one of the firms involved in the financing. The analysis was based on the normal spread between a debt offering by the Province of Ontario and the City of Toronto (about 22 basis points) and the smaller spread (21 basis points) on the green bond.

In this way, Toronto is following the example set by the City of Ottawa, which raised $102 million last November at a yield that was a bit below what a comparable 30-year non-green bond issue would have cost. Ottawa is using the proceeds to finance light rail transit capital work — provided those capital works meet the requirements of its Green Bond Framework.

The word is that the underwriters followed a slightly different procedure with this issue compared with a traditional municipal financing. Rather than underwrite the offering, the agents (RBC Capital Markets was the bookrunner) on Tuesday engaged in a book-building exercise by canvassing the market to gauge investor interest and at what price. Early Wednesday the issue was launched.

There was no great surprise that Toronto would issue a green bond. The news had been announced a few months back when the city said so on its website, noting that its green debenture program “will leverage on the city’s low borrowing interest rates to help finance the city’s transit and other capital projects that contribute to environmental sustainability.” Toronto also decided to do it right by receiving a third party opinion from Sustainalytics, a research firm.

And there was no surprise that the issue, when it came, would be for $300 million. That number was indicated last April in an investor presentation at the RBC Green Bond Conference. And $300 million is in the range of what Toronto raises each time it goes to the market. At the RBC Conference, Toronto said it planned to borrow $2.65 billion over the three years, 2018-2020. After this deal, it has $350 million to raise.

There was also no surprise that the financing was done in early summer: the council takes a summer recess (slated for next month), as do many in the ranks of investors and underwriters.

Both groups were out in full force on Wednesday: the word is that the issue was healthily oversubscribed (meaning the issuer could allocate all the $300 million that were on offer.) About 30 buyers received an allocation.

One source said the buyers “were mostly domestic,” and were mostly institutional investors with a green mandate. In the parlance of the Street, more than 90 per cent of the buyers were in the “dark to light” green category.

Toronto’s $300-million issue caps a busy period of issuance that included a $1.5-billion 10-year financing by CPP Investment Board, a $600-million offering by Manulife Financial and a $450-million financing by Ontario Power Generation. About $5.5 billion has been raised this year, almost three times what was raised in 2017. And the word is that at least a couple of issuers are getting ready to launch their inaugural green bond.

Financial Post

bcritchley@postmedia.com

Loblaw misused Barbados-based subsidiary to avoid taxes, CRA lawyers say

TORONTO — Loblaw Companies Ltd.’s Barbadian banking subsidiary was “playing with its own money” rather than acting as an active business with outside customers and is obligated to pay tax back home, government lawyers told a Toronto court on Wednesday.

Barbados-based Glenhuron Bank Ltd. did not meet the requirements to be considered a foreign bank under Canadian law and be exempt from paying tax to the Canada Revenue Agency, Justice Department lawyer Elizabeth Chasson said in her closing arguments at the Tax Court of Canada.

There is “absolutely nothing” connecting Glenhuron to Barbados, she told Justice Campbell Miller, and the subsidiary was established to avoid paying tax.

“It has no customers in Barbados. It’s not trying to break into the financial services business in Barbados, because it’s only earning profit for itself in a very sophisticated, very complicated system.”

The trial centred on the federal government’s reassessments of Loblaw’s subsidiary for several tax years dating as far back as 2001, and began after the company filed an appeal in 2015. The Minister of Finance concluded the income earned by Glenhuron was from an “investment business” and therefore subject to income tax, according to court documents.

The reassessments, which were received between 2015 and 2018, are for the 2000 to 2013 taxation years and total $437 million of taxes, interest and penalties owed, according to Loblaw’s latest quarterly financial report.

Loblaws Inc. was incorporated as an international business corporation in Barbados in September 1992 and its activities included investing in short-term securities and holding cross-currency swaps, according to court documents.

Loblaws Inc. changed its name to Glenhuron Bank Ltd. in November 1993 and in December 1993 it became a licensee under the Offshore Banking Act of Barbados.

Glenhuron was liquidated in 2013, when Loblaw decided to use that capital domestically to buy Shoppers Drug Mart.

Department of Justice lawyers had argued during the trial, which began in April, that Loblaw Financial took steps to make Glenhuron Bank appear to be a foreign bank in order to avoid paying tax.

Loblaw has argued that Glenhuron qualified for the “regulated foreign bank” exception.

The majority of Glenhuron’s activities involved arms-length entities, such as swap contracts with large banks, and its banking licence from Barbadian authorities is further evidence that it fits the profile of a bank, Loblaw lawyer Al Meghji has told the court.

Although Glenhuron had a banking license from the Barbados authorities, it did not take deposits or provide financial services to outside customers, Chasson argued on Wednesday, but rather largely used its own funds in transactions such as buying short-term securities.

Banks typically take customers’ deposits and use it for lending and investments, she noted.

“The key difference is it comes from the customers, from the public,” Chasson said. “But here, it’s all within the Loblaw/Weston family.”

By entering into swap contracts and purchasing short-term securities Glenhuron is acting as a customer, rather than conducting business with arms-length parties and generating profits, Chasson argued.

“Glenhuron could have been operated anywhere,” she told the court. “It has nothing to do with Barbados in particular. The only thing about Barbados is it’s a low tax jurisdiction. That’s it.”

Avison Young to buy European real estate company after $250-million investment from Caisse

Avison Young Canada Inc. will use a new, $250 million (US$190 million) investment by a big Canadian pension fund to recruit talent and make global acquisitions, including the purchase of a European real estate services company, Chief Executive Officer Mark Rose said.

The Toronto-based firm announced Monday that Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund manager, had made a preferred-equity investment in Avison Young. Caisse will be entitled to designate three members of the company’s nine-member board of directors.

The investment will produce “significant activity” in the coming years, Rose said in a phone interview on Tuesday. That includes the European acquisition, likely to be announced by the end of the month, and an expansion of Avison Young’s presence in major European and Asian markets such as Paris, Madrid, Dublin, Singapore, Hong Kong and Tokyo, he said. He declined to give the European company’s name or the size of the deal.

The commercial real estate services company’s growth strategy has been to attract the best industry leaders and take operations global, Rose said. The company has increased its revenue about 15-fold over the past decade, from about $40 million to more than $650 million, he said, and the additional capital will help it take its revenue into the billions. Cushman & Wakefield Inc. is among its main competitors.

“The focus for us is going to be innovating at light speed on the tech front,” Rose said, citing investment in artificial intelligence-based technology. “The tech for real estate led by AI isn’t here today. I fully expect it’s going to be here in 2021.”

Avison Young will also expand its investments in the Canadian market, as demand remains higher than supply in markets like Vancouver and Toronto amid job growth and strong investment, he said.

“Canada really has been the country that focuses on the credit and covenants of tenants probably better than any country out there, so real returns on a risk-adjusted basis are really fantastic in Canada, and that’s what invites global investment here,” Rose said.

Bloomberg.com