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Update

Friday, April 24, 2020

BDC Capital, Business Development Bank of Canada’s (“BDC”) investment arm, has launched a new relief measure pursuant to which it will provide $150 million of capital to support start-ups impacted by the effects of the coronavirus (“COVID-19”) pandemic. Through the BDC Capital Bridge Financing Program (the “Program”), BDC Capital may match an eligible venture capital-backed company’s current round of financing on a dollar for dollar basis up to $3 million by way of a convertible note.

The Program is ideal for high potential companies who have venture capital investor syndicates that are willing to support them. If your company has been impacted by the COVID-19 pandemic, has a supportive venture capital investor syndicate and needs cash, the BDC Capital Bridge Financing Program may be ideal for you. Additional details of the Program are set forth below.

Eligible Companies 

Eligible companies must:

  • be federally or provincially incorporated in Canada, have substantial operations in Canada and have a majority of its senior management resident in Canada;
  • be backed by a qualified venture capital firm;
  • have raised at least $500,000 in external capital prior to applying for the Program; and
  • be specifically impacted by the COVID-19 pandemic.

BDC has confirmed that if a company is receiving other government assistance (including the federal government’s emergency wage subsidy), the company would remain eligible for the Program. In addition, a company does not have to be part of BDC’s existing portfolio of companies in order to be eligible for the Program. However, BDC has not yet provided details with respect to the manner or extent to which a company must be impacted by COVID-19 in order to be eligible for the Program. In that regard, it is possible that applicants will be required to demonstrate that they have incurred some specified minimum decline in revenue or earnings, terminated or laid off employees or have been adversely impacted in some other manner as a result of the COVID-19 pandemic. 

Eligible Financings

Financings which are eligible to be matched as part of the Program:

  • must have raised a minimum of $250,000;
  • can be either an equity financing or bridge financing; and
  • must have closed after February 1, 2020 or have not yet closed.

Qualified Investor

On April 14, 2020, the Canadian Venture Capital and Private Equity Association (the “CVCA”) hosted a CVCA Member Briefing on the Program. During the webinar, BDC stated that at least one investor who is part of an applicant’s investor syndicate will need to be approved by BDC as being a “qualified investor”. BDC indicated that a “qualified investor” is an investor that has: (i) at least $10,000,000 of assets under management; (ii) third party investors; and (iii) at least three companies in its investment portfolio.

Other Conditions 

Any matching investment by BDC Capital will also be subject to:

  • satisfactory due diligence review by BDC;
  • agreement on terms of the investment; and
  • approval by a BDC investment committee.

While BDC has yet to release any details with respect to the nature and extent of its due diligence and investment committee approval process, we expect that BDC will rely largely on the diligence conducted by the investment syndicate in connection with the eligible financing.

Terms of the Convertible Note

During the CVCA Member Briefing webinar, BDC further indicated that the convertible notes will contain standard terms including, but not limited to, the following:

Interest: The convertible note will bear interest at a rate equal to the BDC base rate plus 4% calculated annually but not compounded. The BDC base rate is a floating rate currently set at 4.5%. 

Maturity: The convertible note will mature and be payable in three years. On maturity: (i) the company may repay the convertible note; or (ii) BDC may, at its sole discretion, convert the convertible note at a 20% discount to the share price used in the company’s most recent financing round at the time of maturity.

Payment-in-kind: Companies have the option of adding interest payments to the principal balance of the convertible note and paid-in-kind. 

Convertible on Qualified Financing/Liquidity Event: In the event that the company has a qualified financing or liquidity event, the convertible note will convert at a 20% discount to the company’s share price for the qualified financing or liquidity event.

Ranking: The convertible note will rank senior to all classes of shares and junior to any existing debt.

BDC reserves the right to require more advantageous terms and conditions in line with the terms and conditions that could be offered to the company’s investor syndicate. If the eligible financing is structured as a convertible note financing and its terms are more favourable to the investors than the BDC terms as summarized above, BDC may elect to invest under the terms of the convertible note financing. 

How to Apply

Further information on the Program is expected to be provided by BDC in the coming days; however, venture capital firms are welcome to contact BDC to explore the eligibility of their portfolio companies for the Program. Please contact VCReliefProgram@bdc.ca if you have a deal to discuss or additional questions. Interested companies are encouraged to reach out to their lead investor or BDC directly for more information.

Deadline

There is currently no prescribed end date for the Program, however BDC expects the Program to be in effect for the next six months.

If you have any questions with respect to this legal update, please contact Troy Pocaluyko (troy@wildlaw.ca), Rory Cattanach (rory@wildlaw.ca), Rebecca Cochrane (rcochrane@wildlaw.ca), Jessica Coco (jcoco@wildlaw.ca), or any other member of Wildeboer Dellelce LLP.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.