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Ontario Financing Authority Aboriginal Loan Guarantee Program
 



Frequently Asked Questions


This page contains answers to commonly asked questions about the Aboriginal Loan Guarantee Program. Please contact us if your question is not answered here or for more information.

 

Q. What is a loan guarantee?
A. Under a loan guarantee, the government guarantees repayment of the loan to a lender in the event the borrower is unable to pay the loan itself.

In order to make borrowing money for the purpose of buying equity in renewable energy infrastructure projects more affordable, the government will provide loan guarantees to corporations wholly owned by eligible First Nations, Métis and Aboriginal communities.
   
Q. How does the program benefit Aboriginal communities?
A. This $250 million program, announced in the 2009 Ontario Budget, will create jobs and promote economic sustainability for Ontario's First Nations and Métis.

The program supports Aboriginal participation in new renewable green energy infrastructure like wind, solar and hydroelectric. By participating in renewable energy projects, Aboriginal communities will benefit from jobs and training as projects are developed and from dividends once projects come into service.
   
Q. Will the program also benefit non-Aboriginal communities?
A. Yes. Neighbouring communities will also benefit from job creation and economic sustainability as projects are developed and come into service.

All Ontarians will benefit from the program because it will help Ontario move towards its goal of producing cleaner energy.
   
Q. What if the project isn't viable?
A. Following the extensive due diligence process and assessing eligibility requirements, if a project is determined not to be viable it will not receive a loan guarantee.
   
Q. What are the financial risks to the Province?
A. Program costs are expected to be minimal and can be offset with a loan guarantee fee charged to the borrower.

To protect Ontario taxpayers, the program ensures appropriate risk-sharing among all parties – the government, the borrower and the financial institution providing the loan.

To minimize risk, the eligibility criteria and due diligence process are designed to make certain only commercially viable projects qualify for loan guarantees.
   
Q. Why is this program being made available now?
A. Aboriginal communities have expressed interest in participating in renewable infrastructure, but have identified access to capital as a barrier. The program is designed to overcome this barrier by guaranteeing loans to commercially viable projects.

It supports the government's new Green Energy Act, which has made the development of renewable energy and Aboriginal participation in electricity projects priorities.
   
Q. Are microFIT projects eligible under the program?
A. MicroFIT projects are not specifically excluded from consideration under the program, however, the requirement that applicants be an incorporated entity will tend to favour larger projects. As well, the application and due diligence process may prove a deterrent to persons seeking smaller loan guarantees.

Generally, the microFIT prices have been set at levels intended to enable project owners to recover the costs of the projects, as well as earn a reasonable return on their investment over the term of the contract. Moreover, many equipment suppliers are able to offer favourable financing, secured by project revenue streams, through a financial institution partner as part of their package.
   
Q. In the event of a claim, how long will it take before the Lender receives payment under the guarantee?
A. The Ministry of Finance will make all reasonable efforts to pay any valid claim, including any accrued interest, within 90 days of receipt of the documentation supporting the claim. The Lender must immediately notify the Province of the event of default and may submit a claim if it is not remedied within the time period allowed under the Loan Agreement. For purposes of the guarantee, a default on a guaranteed equity loan is defined by the OFA as the Borrower’s failure to make payment of any principal or interest when due.
   
Q. What are the benefits of partnership?
A. Ensuring that there are experienced partners in the project demonstrates that the group will be able to operate the facility and take the appropriate steps to minimize exposure to construction and operational risks. In most cases, it is expected this will involve the creation of a Limited Partnership between an Aboriginal community and a private developer. The partner could also be a source of additional capital to the project.
   
Q. What is the term of the guarantee?
A. The term of the loan guarantee will reflect the payback period under the negotiated loan agreement. The final terms and conditions of the loan will be determined based on negotiations between the borrower, the financial institution, and the Province.
   
Q. What is considered an eligible financial institution under the program?
A. Financial institutions eligible to participate in the program, subject to the Province’s approval, include:
  • Schedule I Domestic Chartered Banks,
  • Schedule II Foreign Bank Subsidiaries,
  • Schedule III Foreign Bank Branches of foreign institutions that have been authorized under the Bank Act to do banking business in Canada,
  • Co-operative financial institutions including Credit Unions and Caisses Populaires, and
  • Trust Companies.
Other potential sources of capital may include specialized groups (e.g., involved in infrastructure or Aboriginal financing) associated with insurance companies or pension funds.

The above list includes any Aboriginal institutions operating in the financial services sector.
   
Q. What interest rate will be charged on an equity loan under the program?
A. Under the ALGP, it is expected that financial institutions will be willing to lend money to Aboriginal and Métis communities to augment their equity stakes in eligible projects at interest rates significantly below the rates they would offer in the absence of a provincial guarantee.
   
Q. Can the guarantee apply to a project that is 100% equity financed?
A. Although there are no specific requirements as to how projects should be financed, the expectation is that the project will have a commercial capital structure that is similar to other projects being financed at the time. Typically, this will mean that a significant portion of project costs will be financed by commercial lenders.

The involvement of the commercial lender in financing the project provides additional assurance that the construction and operational risks are being managed effectively to the mutual benefit of the investors, lenders and the Province.
   
Q. Are corporations owned by more than one Aboriginal community eligible for the Aboriginal Loan Guarantee Program?
A. Corporations that are wholly-owned by one or more Aboriginal communities are eligible for the program. A maximum of $50 million in loan guarantees per eligible project will apply.