"Bruce" the mindless eating machine

BDC Fact #11

I recognize that it has been awhile, but I’ve been keeping my powder dry on the Business Development Bank of Canada “Bruce” front in the hopes that the Great White Shark of the Canadian sub debt industry would reform all on its own. You know who I mean.

Bruce the Shark is one of the delightful characters in Finding Nemo (see prior post “BDC Fact #4” December 10-07), the one who so very much wants to live up to the motto of “fish are friends, not food”. Except when he gets his first whiff of blood, that is. Then Bruce’s DNA kicks in and he reverts to what Chum calls a “mindless eating machine”.

The BDC is Bruce in the Ocean we do business in.

How do I know? Here are some scary marketshare statistics for the year to date as of May 23, 2008 for the sub debt (inc. mezz and venture) world where Bruce largely habitates (domestic transactions below $10 million in size):

Number of Sub Debt Transactions Announced in Canada: 31
Number closed by BDC: 22 (71%)
Aggregate dollars advanced for Canadian Sub Debt deals below $10 million: $60.5 million
Aggregate dollars advanced by BDC: $30 million (49.6%)

BDC wasn’t the only player in the market, as other firms closed deals during that timeframe. But Bruce’s voraciousness is remarkable. And this from a Crown Corporation that, by law, is to “complement the private sector” (see prior post “BDC Fact #1” December 3-07).

For the same time period in 2007, BDC’s figures were 68% of closed transactions under $10 million in size but only 31% of aggregate dollars advanced; it would appear that they’ve doubled the average deal size in one year.

In a world where “loan dollar volume authorized” drives personal bonuses, someone wanted the team to hit their targets. Of note, BDC’s fiscal year ended in March.

I attended a speech yesterday given by the Hon. Jim Prentice, Minister of Industry. If you’ve never had a chance to see him at a podium, he comes across as the very type of person that Canadians want to have as an elected representative. Sincere, caring, family-oriented, smart.

He struck a chord with me when he said in his speech that one of the Conservative Government’s platform positions was “reducing government intervention”.

When you think about the crowding out that is going on right now with the BDC in the debt world, one can only hope that Minister Prentice has a look at what Bruce has been up to over the past few years.

The Minister didn’t strike me as a person who would accept BDC’s argument that although the Act says that they must “complement” (and not compete with) the private sector, that only speaks to what they must do on a “global basis”. Although their Act says the opposite, BDC’s top Executives believe that they are allowed under their Act to compete with us on a deal-by-deal basis (see prior post “BDC Fact #1” December 3-07). And finance companies with 1200 employees and more than $100 million in revenue. That’s not the SME market by Minister Prentice’s own departmental definition.

Can you see Minister Prentice trying that one on a Calgary Traffic Cop?

“Officer, I know that you’ve stopped me for speeding, but I comply with the Highway Traffic Act on a ‘Global Basis’. As such, although you’ve caught me doing 70 kms in a 40 km/h zone today, I’m not actually breaking the law. I must merely comply with traffic signs on a global basis.”

Right.

MRM