November 17, 2008 / 1:58 PM / in 9 years

EDC to stop insuring Chrysler receivables

TORONTO (Reuters) - Export Development Canada is no longer taking requests from autoparts makers for insurance against receivables due from Chrysler LLC, the government agency said on Monday, signaling growing fears the automaker may go bankrupt.

EDC backstops mainly small and medium-sized businesses by providing insurance covering up to 90 percent of losses if a customer refuses to pay. That includes when a customer goes bankrupt, declares insolvency or cancels a contract.

"EDC is maintaining our existing coverage on Chrysler, but we are not adding any new coverage. The change was based on credit consideration," agency spokesman Phil Taylor said.

U.S. auto companies have been hamstrung by falling demand amid a worsening economic downturn and a shift to smaller, more fuel efficient vehicles.

Detroit's Big Three -- Chrysler, Ford Motor Co and General Motors Corp -- have been lobbying for a $25 billion aid package from the U.S. government and speculation about one or more falling into bankruptcy has been growing.

Taylor said the EDC, which provides financing and risk management services to Canadian exporters and investors, continues to maintain its coverage of existing clients and that there has been very little new demand in the past few months.

"Since new demand is very low and we continue to serve our existing clients, our change should not represent any substantial change in the marketplace," he said.

It's business as usual for suppliers wanting to insure receivables with Ford and GM.

Last week, however, three big European credit insurers removed coverage from suppliers to GM and Ford, the Financial Times reported.

Last month, the federal government approved a C$2 billion ($1.6 billion) increase in EDC's borrowing authority.

It said the move would "ensure that its clients have access to the financing they need to continue to grow, innovate and take advantage of business opportunities in Canada and abroad."

When the Automotive Parts Manufacturers' Association told Ottawa it needed up to C$1 billion ($820 million) in emergency funds and loan guarantees because liquidity and normal funding sources were drying up, the government said it had already taken steps to improve financing conditions. Specifically, it pointed to the increase in the EDC's borrowing capacity.

Reporting by John McCrank and Louise Egan; editing by Rob Wilson

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