DBRS Comments on Proposed Changes to the Canadian Wheat Board Act

DBRS notes that, on October 18, 2011, the federal government introduced draft legislation (Bill C-18) as part of an effort to reform the Canadian Wheat Board (CWB). The CWB was originally established in 1935 through an act of Parliament with the primary objective of marketing wheat and barley grown in western Canada in both interprovincial and export trade. Bill C-18 proposes to remove CWB’s monopoly status for marketing grain and to allow western Canadian wheat and barley producers to market grain voluntarily through the CWB or independently. In addition, during a four-year transitional period, the CWB will be asked to develop a strategy to operate as a commercial entity and make an application to the government; should this application not be accepted by the federal government, the operations of the CWB will be wound down. In the event that the operations of the CWB are dissolved, Bill C-18 indicates that any outstanding debt and liabilities of the CWB would become debts and obligations of the Government of Canada.

The CWB ceased being an agent of the Crown in 1998. Nevertheless, all debt issued and outstanding continues to benefit from an unconditional and irrevocable debt guarantee provided by the Government of Canada (see DBRS press release “DBRS Confirms Government of Canada at AAA and R-1 (high)” dated July 26, 2011). While no details on outstanding debt are provided in the proposed legislation, DBRS would expect outstanding debt to continue to benefit from the federal guarantee and that the long- and short-term ratings of the Government of Canada would continue to apply.

Under the proposed legislation, the CWB will continue to submit its borrowing plan for the upcoming year and receive government approval in advance. However, not all debt issued by the CWB will necessarily benefit from a federal guarantee. The CWB would have the ability to issue debt with or without a guarantee. As such, there could potentially be two classes of debt should the legislation be adopted as currently proposed: (1) debt guaranteed by the federal government, and (2) debt backed solely by the underlying fundamentals of the CWB. While the former would continue to be rated in line with the Government of Canada, the debt issued without a guarantee would be rated based on the underlying credit profile of the reformed organization.

DBRS notes that the proposed legislation has yet to become law, and as such, there could be additional changes that could affect the final operating framework of the CWB. It is currently anticipated that Bill C-18 will be passed before the end of 2011, at which point DBRS will provide further commentary, if necessary.

Note:
The applicable methodology is Guarantees and Other Forms of Explicit Support, which can be found on our website under Methodologies.