TORONTO, April 22 (Reuters) - Canada’s export credit agency will backstop loans to hard hit oil and gas producers, a document seen by Reuters showed, in the latest move by Ottawa to free up credit for the struggling energy industry.
The relief comes as banks review borrowing limits in the sector and could head off bankruptcies of small and mid-sized energy firms pummeled by the collapse in oil prices.
Canadian banks have eased some lending standards but are expected to chop credit lines as they recalculate energy companies’ borrowing bases to account for a 75% drop in U.S. oil prices since the start of the year.
The “dramatic fall in prices will force borrowing base redeterminations downwards, in some cases, below the level where current facilities are drawn,” Export Development Canada (EDC) said in a slide presentation, dated April 17.
Under the program, called a reserve-based lending guarantee, the agency will backstop up to 75% of a bank loan, to a maximum of C$100 million, for at least one year, the document said.
“EDC will provide an incremental guarantee of over and above the (banks’) borrowing base to partially mitigate the current oil prices,” it said.
EDC did not immediately respond to questions.
The program is targeted at Canadian firms with production no greater than 100,000 barrels of oil equivalent per day, according to the presentation.
Canada on Friday said it would offer commercial loans worth between C$15 million to C$60 million to producers through the Business Development Bank of Canada, in addition to C$2.5 billion ($1.8 billion) in aid to help the industry weather fallout from the COVID-19 pandemic.
Alberta Premier Jason Kenney has estimated the need for liquidity in the sector at C$15 billion to C$30 billion.
Finance Minister Bill Morneau on Friday said more needed to be done to ensure large businesses had access to credit, and promised details soon. (Reporting by Jeff Lewis Editing by Marguerita Choy)