Canadian Capital Confidence Barometer - April-October 2013
Access to capital
Credit increasingly available
In addition to their improved outlook on the economy, Canadian companies are more confident than ever about their ability to access the global credit markets.
When asked about credit availability at the global level, 45% of Canadian respondents see improvement, the highest level in two years. Only 15% report a decline — again, the lowest level in two years. But as in several other areas, higher confidence was expressed by US respondents.
Please indicate your level of confidence in credit availability at the global level
Global appetite for leverage poised to rise — but not in Canada
According to global and US respondents, we may be near an inflection point, with companies’ large-scale changes to capital structure now nearing completion. Debt-to-capital ratios remain fairly constant today, but the appetite for leverage is expected to decrease among Canadian respondents, whereas global and US respondents are expected to increase their leverage.
The mix of cash and credit to fund deals will move toward traditional levels as valuations start rising and companies gear up to do larger and more transformational deals that cannot be funded principally with cash. However, 42% of Canadian companies expect to decrease their leverage over the next year, raising the question of why more companies are not taking greater advantage of available credit.
For the next 12 months, the 23% of Canadian companies that plan to refinance debt say that in doing so, they will focus on retiring maturing debt and optimizing the capital structure (in non-stressed situations).
Cash dominates near-term deal financing
Almost half of Canadian respondents (49%) point to cash as their primary source of deal financing in the next 12 months. Despite abundant credit availability, just over one-third (38%) say they plan to use debt as their primary source. The predominant use of cash to finance deals may be indicative of companies’ ongoing cautionary mindset and evidence of their need to deploy cash currently earning low rates of return.