Federal Government Announces that Canada Indigenous Loan Guarantee Corporation is Accepting Applications

Federal Government Announces that Canada Indigenous Loan Guarantee Corporation is Accepting Applications

For those interested in pursuing opportunities for Indigenous equity ownership in major projects, this bulletin contains important updates on the Government of Canada’s recently published 2024 Fall Economic Statement (“FES”).

In its FES, the Government of Canada announced the creation of the Canada Indigenous Loan Guarantee Corporation (“CILGC”), a subsidiary of the Canada Development Investment Corporation, to manage the Indigenous Loan Guarantee Program (“ILG Program“) and to provide loan guarantees to support Indigenous ownership in natural resource and energy projects.  CILGC’s loan guarantee application portal is now open.

The FES also announced that Indigenous communities seeking to make decisions on equity ownership in projects will be able to access funding for investment analysis and due diligence through Natural Resources Canada, with a plan to announce the first Indigenous loan guarantees in the near term. The ILG Program and the CILGC help build the foundations for achieving “economic reconciliation,” an increasingly important focal point for governments, Indigenous communities and industry in recent years.

Background

The ILG Program was first announced in the federal government’s 2023 Fall Economic Statement.  Budget 2024 proposed that the ILG Program would provide up to $5 billion in loan guarantees to Indigenous governments and their wholly owned and controlled entities seeking to make equity investments in natural resource and energy projects.  Under the ILG Program, loans are provided by financial institutions or other lenders and are guaranteed by the Government of Canada.  As a result, Indigenous borrowers benefit from the government’s AAA credit ratings which in turn delivers a lower interest rate than is available to most borrowers.

Budget 2024 announced that the ILG Program would be for sector-agnostic natural resource and energy projects which means that conventional oil and gas as well as mining projects are eligible.  The eligibility of such oil and gas projects reflects the increasing number of equity partnerships between Indigenous communities and industry in this sector.

Key Aspects

The government has created the CILGC to manage the ILG Program and to provide the loan guarantees. The CILGC is directed to operate under certain principles, including having a diverse board of directors and executive team with strong Indigenous representation and operating “at the speed of business.”

Natural Resources Canada will provide support during the first two years, in consultation with the CILGC, to assess eligibility and to deliver capacity funding for investment analysis and due diligence.

As committed to in Budget 2024, the ILG Program will provide up to $5 billion in loan guarantees to support Indigenous ownership in natural resource and energy projects.  Loan guarantees of $20 million and up to $1 billion will be available.

Investment analysis and due diligence funding will help Indigenous communities obtain advisory services such as legal, financial, commercial, engineering, and deal structuring and negotiation services.  This funding will not be used to support application development or project feasibility studies.

Applications are invited on a continuous, rolling basis, and will be reviewed as they are received.  Priority will be given to projects that are more advanced in their development and have demonstrated cash flow potential.

The ILG Program does not offer direct financing for a project, and will not offer loans, grants, guarantees for non-equity loans, or other forms of financial support. However, the CILGC will facilitate stacking of federal-provincial loan guarantees up to 100% of an equity stake acquisition and also stacking with other federal sources such as federal grants and loans from federal Crown corporations up to 75% of project costs.

Eligibility

Eligibility for the ILG Program is restricted to rights holders under section 35 of the Constitution Act, 1982.  Wholly owned subsidiaries of section 35 rights holders are eligible as are consortiums.

Applications must have a clear statement of support from their Indigenous group’s leadership such as a band council resolution or other formal decision document.

Projects must impact the section 35 rights of the applicant.  For consortiums, a minimum of 25% of the value of the investment must be contributed by Indigenous communities that meet this geographic impact criterion.

Applicants must demonstrate that their investments will be made into financially ring-fenced assets or operations, subject to confirmatory due diligence.

Application Process

The process for an application under the ILG Program has several steps.

1. The initial eligibility assessment will ensure alignment with eligibility criteria.  The CILGC will operate under a principle of early engagement with potential applicants to identify and address any issues with applications.
2. The next step is engagement with applicants and project prioritization.  Early engagement is expected to ensure that rigorous standards for commercial and financial viability are met.  The CILGC may undertake tailored reviews of eligible applications to facilitate prioritization and approval.  For prioritized applications, the CILGC will conduct due diligence, investment appraisal and, as required, negotiation of draft terms.
3. After completing the appraisal of the investment, the CILGC will make a recommendation to the Minister of Finance who, in consultation with the Minister of Natural Resources, will make discretionary decisions on individual loan guarantees.  Once the Minister approves a loan guarantee, the CILGC will finalize the documents needed to issue a loan guarantee.

The CILGC will monitor compliance with key commercial and financial terms on an on-going basis.

Impacts

The ILG Program is a long-awaited initiative that will help address the gap in access to affordable capital for Indigenous communities and enable them to make viable economic investments. In alignment with the growing focus on “economic reconciliation”, it bolsters the opportunities for Indigenous community equity ownership in major projects. It will also be beneficial for proponents developing partnerships with Indigenous communities and seeking financing for their projects, especially in the natural resources, infrastructure, clean and traditional energy industries.

Combined with existing provincial funding programs, for example, Alberta’s Indigenous Opportunities Corporation, British Columbia’s First Nations Equity Financing Framework, Saskatchewan’s Indigenous Investment Finance Corporation, and Ontario’s Aboriginal Loan Guarantee Program, the ILG Program adds another avenue for Indigenous investment and equity participation. That said, it remains to be seen how the federal and provincial funds will interact and coordinate with one another, and which lessons, if any, will be learned across the governments to ensure the most effective implementation.

Further, navigating the ILG Program and the interplay with similar provincial funds is not simple. A fulsome understanding of the requirements and details of these programs is required to ensure Indigenous communities and their partners are not missing out on funding and to maximize the potential opportunities that these programs offer.

McMillan will continue to monitor the implementation of the ILG Program and look out for emerging opportunities that exist for Indigenous communities and key industry players. Interested parties are encouraged to contact the authors of this post.

By  Laurie Wright, Sharon G. K. Singh, Robin M. Junger,  and Claire Lingley

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024