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Canada drought
24 September 2009
Canada's provinces, once confident of sailing through the credit crunch, are adapting painfully to the new PPP reality. Can they keep sponsors and lenders happy while sticking to their own affordability rules? Tom Nelthorpe reports.
The change in market conditions, when it came, was jarring. PPP in Canada had taken off, in part, on the back of sustained competition between Canadian lenders, bond buyers, monolines, and foreign banks. High leverage, low pricing, and fast execution helped redeem PPP, under a new name (alternative financing and procurement), in Ontario and have a visible impact on the landscape of British Columbia.
Even as the bond insurers teetered in early 2008, and bond and institutional loan markets began to freeze up, provinces expressed confidence that the turbulence would not affect their concession programmes. In the aftermath of Lehman Brothers' collapse banks' funding costs increased, though banks had already stopped lending for 30 years at margins of barely 100bp over Canadian Libor.
Normality – of sorts – has returned to the market, though without some of the excesses of the 2006-7 period. This normality more closely resembles the market...
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