An executive at the federally owned Trans Mountain corporation gave TD Bank a heads up that the government would obscure the financial institution’s involvement in a multibillion dollar bailout for the struggling oil pipeline, according to an email obtained by The Narwhal.
Trans Mountain chief financial officer Mark Maki gave the assurance to six people working for Toronto-Dominion Bank’s investment banking arm, TD Securities, in the May 2022 email obtained under access to information law.
Maki opened his message to the six bankers by amicably greeting them as the “TD crew.” He also sent them an advance copy of Finance Canada’s news release about the government’s latest effort to support the construction of the pipeline’s expansion project.
The email provides a glimpse at private conversations between the federal government and Canada’s big banks in the lead-up to Ottawa’s decision to support a $10 billion loan to Trans Mountain from a financial syndicate. The federal government’s support came in the form of a loan guarantee — meaning the public would assume the loan’s financial risk. It also provides a stark example of how the government offered to protect bankers from criticism about their involvement in the controversial pipeline expansion.
“TD crew, the Government of Canada will be issuing a news release shortly to deal with inbound requests with respect to the status of [Trans Mountain corporation] financing,” Maki, who spent three decades at rival pipeline company Enbridge, told the bankers.
“Please note no specific callout of the syndicate members.”
The government decided to offer the loan guarantee in the wake of Finance Minister Chrystia Freeland ruling out any further direct public funding for the pipeline’s expansion, leaving private lending as the main alternative.
Canada Development Investment Corporation, the Crown corporation that owns the pipeline and reports to Parliament through Freeland, said in its 2021 annual report that the pipeline would require “necessary external financing” or else it couldn’t complete the construction project.
But the loan guarantee was put in place despite the fact that the cost of completing the pipeline’s expansion had swelled to $21 billion from an initial cost estimate of $7.4 billion. (The cost has since grown further to more than $30 billion as of March 2023.)
In backing the loan, the government also put taxpayers on the hook in the event the expansion project is cancelled, according to a financial report from the Crown corporation.
Despite the uncertainty involved in placing the risks of a $10 billion financing deal for a project plagued with cost overruns into the public’s hands, Ottawa’s conversations with the banks were carried out behind closed doors.
Even after Finance Canada revealed details of the loan in a public announcement, the department left out TD’s name, and the names of the syndicate’s other members. A CBC News report from the time, for example, noted “the statement didn’t say which institutions are funding the pipeline’s completion.”
Trans Mountain and Finance Canada have defended their decision not to be proactive about telling Canadians how the banks were involved in the $10 billion deal. The pipeline company and federal department argue the information was already available for people with a subscription to financial data services.
“When this news release was issued, information about the lenders was already public,” a spokesperson for Finance Canada said. “The transaction was disclosed through data services like Bloomberg and Refinitiv.”
The Bloomberg Terminal is a popular financial data service, costing around US$24,000 per year to access. Refinitiv Eikon is a competitor, and costs around US$22,000. Other data services can come cheaper, but most require paid subscriptions of some sort to access, although they may have free trials.
Asked why TD was given a heads up about not being named in the government’s announcement, a spokesperson for Trans Mountain called it a “courtesy.”
The email from Maki and a copy of Finance Canada’s announcement were the only documents released to The Narwhal after requesting all correspondence between Trans Mountain and the department, concerning the loan guarantee. The Narwhal could not confirm whether other banks were notified prior to the news release being published.
Environmental advocacy group Stand.earth accessed the financial data from the Bloomberg Terminal in May 2022.
They discovered that the syndicate backing the pipeline was comprised of TD, along with all of Canada’s other “big five” banks — Bank of Montreal (BMO), Bank of Nova Scotia (Scotiabank), Canadian Imperial Bank of Commerce (CIBC) and Royal Bank of Canada (RBC) — as well as National Bank of Canada.
Due to the significant price tag for access, the data the group obtained should not be understood to have been publicly available, the group’s climate finance director Richard Brooks said in an interview.
“Finance Canada is lying, you can quote me on that. They’re lying, it wasn’t public,” he said.
Because the government owns the pipeline, conversations and negotiations about securing private financing “should have been in the public sphere and not behind closed doors,” Brooks argued.
The fact that TD Bank was offered an advance copy of the news release from Finance Canada, he added, also raises questions about government accountability.
“Our government should be accountable to us Canadians, not to the bank,” Brooks said. “This is part of the reason why we can’t leave it to our Canadian banks to [scale back] their activities when it comes to fossil fuel financing.”
The Canadian Bankers Association, an industry group that represents TD Bank and Canada’s other big banks, said it would decline to comment on Maki’s email.
Four spokespeople for TD Bank did not return requests for comment from The Narwhal.
There is an “obvious contradiction” in the role that TD Bank has played when it comes to Trans Mountain, argued independent economist Robyn Allan, a former president of the Insurance Corporation of British Columbia and a prominent critic of the pipeline expansion project.
Trans Mountain’s expansion will nearly triple the pipeline’s capacity to 890,000 barrels per day of crude oil and other petroleum products flowing from near Edmonton to a Vancouver-area marine terminal. In 2015, Allan withdrew her status as an intervenor in the federal energy regulator’s review of the expansion project, accusing the regulator of ignoring issues like the impact of increased carbon pollution from the oilpatch that the pipeline would facilitate.
The contradiction with TD comes from its dual role as financial advisor and lender, Allan said.
As a financial advisor, TD Securities, along with BMO Capital Markets, found in early 2022 the project was still “commercially viable” despite cost estimates that were already elevated at the time, according to a Finance Canada statement issued three months before Maki’s email.
Yet as a lender, the bank’s participation in the syndicated loan to Trans Mountain came with a government guarantee, “as if the project is too risky — as if it is not commercially viable,” Allan said.
“None of the information regarding TD’s financial viability analysis has been made public, so it is not possible to check the veracity of TD’s financial viability claim,” she said.
Adding to this contradiction is the fact the government felt the need to hide TD’s involvement in the syndicated loan, Allan said. “This behaviour raises red flags as to what [else] TD and the Government of Canada are trying to hide,” she said.
TD’s public connection with Trans Mountain dates back to before Prime Minister Justin Trudeau’s Liberal government bought the pipeline and its expansion project from Texas energy company Kinder Morgan in 2018.
In 2017, the bank acted as a lead underwriter for a $1.7 billion initial public offering for Kinder Morgan Canada Limited, and in 2018 it helped finance Canada’s $4.7 billion purchase of the pipeline. That same year, TD Securities also wrote the opinion that the government’s offer at the time was fair.
Now, with costs continuing to rise, other financial analyses, such as that from the Parliamentary Budget Officer, have questioned the ability of Trans Mountain to cover its debts. Allan herself concluded in an October 2022 report for West Coast Environmental Law that the tolls shippers on the pipeline will pay once the expansion project is operational, have not kept pace with the construction costs.
Meanwhile, the project continues to face “numerous technically challenging construction activities,” like groundwater leaching into mountain drilling areas and problems sourcing specialty cement for a tunnel, according to the Crown corporation. This “adds uncertainty in costs and schedule” to the predicted timeline of completion by 2023, it said.
The pipeline has also faced controversy over inadequate consultations with Indigenous communities, including a Federal Court of Appeal decision in 2018 that said Canada failed to meaningfully consult with Indigenous Peoples about the expansion project, quashing Trudeau’s original approval of it.
The Tsleil-Waututh Nation, which argued in that case that Canada failed in its duty to consult, wrote a letter to TD Bank’s CEO Bharat Masrani in March 2022, warning the bank against considering any financing for Trans Mountain’s expansion plans, in light of the risks from climate change and infringing human rights.
Cabinet approved the $10 billion loan guarantee on April 29, 2022. Maki sent his message a couple weeks later to four people in the Calgary office of TD Securities who work in global energy, loan syndications and corporate credit, according to their LinkedIn profiles, and two more at the bank’s Toronto office.
He copied a lawyer and a vice-president for Trans Mountain, an executive at the Crown corporation and two officials at Finance Canada — a director of corporate finance and a senior advisor to the deputy minister.
The $10 billion in financing was structured as a revolving credit facility, which is sort of like a credit card, where the borrower can make withdrawals, repay and then make further withdrawals.
By the end of 2022, the pipeline company had withdrawn $7.2 billion from it, according to Canada Development Investment Corporation’s 2023 to 2027 corporate plan summary.
In exchange for the federal government’s guarantee of the loan, the company paid a fee. At the end of 2022 it had racked up $36.8 million in guarantee fees, according to the corporate plan.
The $10 billion deal had a one-year term. In May 2023, Trans Mountain secured a new financing deal, one with a two-year term and a higher borrowing limit of $13 billion, the corporate plan shows.
Stand.earth, the environmental advocacy group, obtained financial data in May that confirmed this new arrangement. The data shows all of Canada’s “big five” banks are again involved, as well as National Bank.
As of December 2022, Trans Mountain corporation was $23.3 billion in debt. In the four and a half years between the time the pipeline was bought by the government and the end of 2022, the pipeline company has sunk “over $18 billion” into the expansion project, the corporate plan confirmed.
Even so, Trans Mountain says it still needs more money.
The Crown corporation’s plan says an additional $3 to $5 billion of funding “will be required and has not been fully identified.” In the event that it can’t secure this funding, the Crown corporation said construction of the pipeline expansion would need to be halted, and workers laid off.
If the expansion project was cancelled, it said, “borrowings outstanding under the [loan] would have the government guarantee triggered.”
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