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Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents (Series 1) Browse by Media Type 3-30-2009 The Governments of Canada and Ontario Reject Automakers' Restructuring Plans Canada: Industry Canada Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation Canada: Industry Canada, "The Governments of Canada and Ontario Reject Automakers' Restructuring Plans" (2009). YPFS Documents (Series 1). 9318. https://elischolar.library.yale.edu/ypfs-documents/9318 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents (Series 1) by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. 1/5/2021 Industry Canada Site - The Governments of Canada and Ontario Reject Automakers' Restructuring Plansfile://bass.som.yale.edu/Case Writers/Pool/YPFS/New Bagehot/Cases/Autos/Resource Folder/Documentation/Bridge Loans/International/2009-03-30 I… 1/4Home > Media Room > News Releases > By Date — 2009The Governments of Canada and Ontario Reject Automakers' Restructuring PlansOTTAWA, March 30, 2009 — The Honourable Tony Clement, Minister of Industry, the HonourableJim Flaherty, Minister of Finance, and the Honourable Michael Bryant, Ontario Minister of EconomicDevelopment, today announced that the plans submitted by General Motors of Canada Limited andChrysler Canada Inc. are not sufficient for the governments to certify their restructuring plans. Thegovernments have requested that additional work be undertaken by General Motors and Chrysler as partof ongoing restructuring efforts.“While the restructuring plans represent progress, they do not go far enough to ensure the long-termviability of these companies. Therefore, we are not certifying their proposals,” said Minister Clement.“Together with our U.S. counterparts we believe that further fundamental changes are needed.”In conjunction with the U.S. Government, the governments of Canada and Ontario are requesting thatboth companies undertake additional work to ensure their future competitiveness and that allstakeholders contribute appropriately to improving the overall cost structures in their plans.General Motors has been asked to undertake a more fundamental restructuring of its products and itsoperations, while Chrysler has been asked to come to terms with labour on a contract that works for thecompany and with Fiat on a workable alliance.This additional work will be supported in Canada by the interim loans announced by Prime MinisterStephen Harper and Ontario Premier Dalton McGuinty on December 20, 2008. Canada is contributing20 percent of the existing U.S. interim financing, in keeping with its share of Canada–U.S. production.“Together with the Government of Ontario, we are working in conjunction with the U.S. Government tocreate a viable industry and to maintain Canada's share of Canada–U.S. production going forward,” saidMinister Flaherty. “The interim loans to General Motors and Chrysler reflect our priorities to both protectour economy and exercise firm oversight over taxpayer dollars.”Interim loans will be advanced as necessary in the amounts of $3 billion for General Motors of CanadaLimited and $1 billion for Chrysler Canada to assist the companies while they work on their restructuringplans. These loans are not to pay off debts to parent companies, taxes or underfunded pension liabilities.In the loan agreement, the Government of Canada puts limits on executive compensation to seniorCanadian employees from 2008 through the term of the loan. The borrowers must provide regularreports on cash and liquidity positions, production and revenues.“The auto companies have come some distance, but they need to go further,” said Minister Bryant. “Inthe meantime, we support this integrated approach that will extend a federal-provincial bridge to abetter plan for taxpayers and our economy.”In the case of Chrysler Canada, the loan agreement has been signed and $250 million will be advancedas soon as possible. The federal government will provide two-thirds of the loans, while the Ontariogovernment will contribute one-third.This Canadian support is in addition to amounts already announced in Canada's Economic Action Plan forthe Canadian Secured Credit Facility to support consumer demand, the Community Adjustment Fund tosupport distressed communities, and additional funds provided to Export Development Canada to expandits program of accounts receivable insurance for auto parts suppliers.This website was captured for preservation purposes by Library and Archives Canada (LAC). Some internaland external links as well as forms, search boxes and interactive elements, including videos, may notfunction on this archived site.Captured at: 16:20:50 Apr 09, 2009 View Other Captures   Web Archives Home[ Close ]1/5/2021 Industry Canada Site - The Governments of Canada and Ontario Reject Automakers' Restructuring Plansfile://bass.som.yale.edu/Case Writers/Pool/YPFS/New Bagehot/Cases/Autos/Resource Folder/Documentation/Bridge Loans/International/2009-03-30 I… 2/4The auto industry directly employs over 150,000 Canadians plus another 340,000 indirectly. It is ourlargest industry within the manufacturing sector and represents 14 percent of our manufacturing outputand 23 percent of manufactured exports.For further information (media only), please contact:Pema Lhalungpa Press Secretary Office of the Honourable Tony Clement Minister of Industry  613-995-9001Chisholm Pothier Press Secretary Office of the Honourable Jim Flaherty Minister of Finance 613-996-7861Greg Crone Office of the Honourable Michael Bryant Minister of Economic Development of Ontario  416-326-9345March 30, 2009 Backgrounder Government Support to the Auto IndustryThe governments of Canada and Ontario, in tandem with the U.S. Government, are requesting thatGeneral Motors of Canada Limited and Chrysler Canada Inc. undertake additional work to improve theircompetitive position in the marketplace and reduce their overall costs in their long-term restructuringplans. Both companies must also demonstrate that Canada maintains its share of Canada-U.S.production in their respective plans.General Motors has been asked to undertake a more fundamental restructuring of its products and itsoperations, while Chrysler has been asked to come to terms with Fiat on a workable alliance. In the caseof General Motors, the governments expect the company to complete the process within an additional60 days. The governments expect Chrysler to complete its process within an additional 30 days.Why the restructuring plans need additional workWhile General Motors' and Chrysler's restructuring plans and actions to date represent progress, theU.S. Government has asked them both to implement further restructuring in order to ensure long-termviability. This decision by the U.S. Government is material to the Canadian decision, given the integratednature of the two companies on either side of the border.The U.S. conclusion is in line with findings by federal and provincial officials, who have been evaluatingthe viability of each company's Canadian operations, based on internal analysis and third-party duediligence.Canada's analysis has had two focal points:Whether the companies have demonstrated that they will be competitive in the marketplace.Whether the companies will have a competitive cost structure over the medium to long term.Canada's analysis indicates that the companies are not there yet. Therefore Canada has not certifiedeither of their restructuring plans.1/5/2021 Industry Canada Site - The Governments of Canada and Ontario Reject Automakers' Restructuring Plansfile://bass.som.yale.edu/Case Writers/Pool/YPFS/New Bagehot/Cases/Autos/Resource Folder/Documentation/Bridge Loans/International/2009-03-30 I… 3/4What Canada is asking the automakers to doThe companies must examine their assumptions about overall auto sales and their assumptions aboutmarket share corresponding to their current product mix and their long-term product plans. In the caseof Chrysler, this will require coming to terms with Fiat on a workable alliance to take advantage of scaleeconomies and a competitive product mix.As with the U.S. Government's request, Canada is requesting that both companies and their stakeholders— management, labour, retirees, dealers and suppliers — contribute appropriately to improve overallcost structures in their long-term restructuring plans.Both the U.S. and Canadian governments are extending the deadlines for certification of therestructuring plans by an additional 30 days for Chrysler and by an additional 60 days for GeneralMotors.Additional supportThis continued restructuring will be supported in Canada by up to $4 billion in interim loans, which werepromised by Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty onDecember 20, 2008. The interim loans in the amounts of $3 billion for General Motors of Canada Limitedand $1 billion for Chrysler Canada Inc. will be available to ensure continued operations in Canada assoon as it is required. In the case of Chrysler Canada, the loan agreement has been signed and$250 million will be advanced as soon as possible.The Canadian interim loans augment measures already announced in Canada's Economic Action Plan,including the Canadian Secured Credit Facility to support consumers and businesses, the CommunityAdjustment Fund to support distressed communities, and additional funds provided to ExportDevelopment Canada (EDC) to expand its program of accounts receivable insurance (ARI).EDC is assessing the extent of its existing Accounts Receivable Insurance coverage for Canadianautomotive industry suppliers.The $12-billion Canadian Secured Credit Facility will help improve credit availability for consumers topurchase and lease new vehicles at a time when global credit markets are severely disrupted. This willhelp consumers finance new vehicle purchases.Annex — Details of the interim loansThe U.S. indicates that current loans provided by U.S. Treasury to each company will not be called onMarch 31, 2009, and additional interim loans would be available if needed to ensure that General Motorsand Chrysler are supported while they perform this further work.Until this month, Canada did not receive documented requests to provide the interim loans offered onDecember 20, 2008. Due diligence was undertaken and completed to understand the short-term liquidityneeds of both companies. General Motors of Canada Limited has only recently sought Canadiangovernment assistance, and it has demonstrated a need for short-term assistance as soon as early April.Chrysler Canada Inc. has now made a clear demonstration of need and has asked for assistance beforethe end of March to cover payroll and other operating expenses. Consequently, $250 million will beadvanced as soon as possible.Canada committed to financial assistance in proportion to that provided by the U.S. Government, withthe goal of Canada maintaining its share of production.Although it is believed this will be enough time to perform the required work, like the U.S., Canadarecognizes the possibility that the necessary changes may require a court-supervised restructuring inorder to be completed.Loan Amounts: Interim loans will be provided up to $4 billion.1/5/2021 Industry Canada Site - The Governments of Canada and Ontario Reject Automakers' Restructuring Plansfile://bass.som.yale.edu/Case Writers/Pool/YPFS/New Bagehot/Cases/Autos/Resource Folder/Documentation/Bridge Loans/International/2009-03-30 I… 4/4Date Modified: 2009-03-30Allocation of Loans: General Motors of Canada Limited is eligible for an interim loan up to $3 billion,and Chrysler Canada Inc. is eligible for an interim loan up to $1 billion.Interest Rate: Interest charged on these instruments will be set at 300 basis points above CanadianDealer Offered Rate (CDOR + 300 bps) with CDOR floor of 2 percent. Therefore, the minimum interestrate on these loans is 5 percent.Terms of Loans: Three-year term, callable in the event the Lender (i.e., Canada and Ontario) does notcertify the restructuring plan. The Lender is free to establish a certification date prior to, aligned with, orup to 30 days beyond any new date established for the U.S. loan agreement.Closing Date on Loans: The closing date for the Chrysler Canada Inc. interim loan is the end ofMarch 2009. The closing date for the General Motors of Canada Limited liquidity facilities has yet to bedetermined.Timing and Amount of Interim Loan Disbursement:General Motors: the timing of disbursement has yet to be determined.Chrysler: $250 million End of March 2009 $500 million Early April 2009 $250 million May 1, 2009Security: Access to interim loans will require a first priority interest be put on Chrysler Canada Inc.'sproduction facilities. In the case of General Motors of Canada Limited, access to interim loans will requirethat the governments of Canada and Ontario be granted senior status for the loans to the extentpermitted by law under existing agreements. In consideration, the governments through EDC will receivean additional interest-bearing note equal to 6.67 percent of any loan made to Chrysler Canada.Uses of Funds: Loaned funds are to be used for general corporate and working capital purposes, inparticular to finance the ongoing operations of the borrower and its subsidiaries.Conditions:Amounts owing to automotive parts suppliers to be paid in a timely manner in accordance withestablished accounts payable policies.Borrowers must accept limits on executive compensation in Canada, including performance pay.Borrowers are not permitted to use the proceeds to prepay indebtedness, nor to apply the fundstoward tax obligations.Borrowers must provide fully-authorized warrants for non-voting stock, or equivalent interesting-bearing notes.Borrowers must report material transactions (any business or other financial transaction with anassociated value in excess of $125 million).Regular reports are to be provided on cash and liquidity positions, production and revenues as wellas rolling three-month projections.Federal and Ontario government officials or their duly appointed contractors or agents shall haveunimpeded access to the borrower's records.

The Governments of Canada and Ontario Reject Automakers\u27 Restructuring Plans

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The Governments of Canada and Ontario Reject Automakers\u27 Restructuring Plans

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