Canadian Capital Confidence Barometer - October 2013 - April 2014
Access to capital
Credit is widely available
Canadian executives report that their access to credit is consistent over the last six months, and their debt-to-capital ratios remained largely constant.
This disciplined use of leverage suggests companies are able to access the credit markets when needed to facilitate transaction activity.
Companies’ slight uptick in willingness to use leverage could also lead to a future shift in the dealmaking environment. However, current dealmaking will likely be controlled and risk averse. The fact that companies plan to use limited leverage points to the conservatism that has marked this recovery.
Modest shift towards leverage
- Credit availability inspires growth
The vast majority of Canadian (81%) and US (91%) executives are confident that credit availability is stable or improving. Furthermore, the sentiment on improving credit is significantly higher than it was 12 months ago. This confidence — coupled with positive views on the economy and sound economic fundamentals — equips companies for dealmaking.
- Debt-to-capital ratios will be carefully managed
Over the last six months, debt-to-capital ratios remained largely constant, and access to credit remains steady. This disciplined use of leverage means companies have the capacity to access the credit markets when they choose to undertake larger transactions.
- Use of debt and equity may signal potential deals
Both Canadian and US respondents appear more willing to use debt and equity to finance deals in the next 12 months. Canadian companies (41%) appear to be more willing than their US counterparts (32%) to use debt to finance deals. The confidence to use more debt and equity to finance deals — even if that shift is modest — may represent a move away from risk aversion and smaller, cash-based transactions. The use of more leverage may also highlight the need for larger deals to address growth mandates, while also signalling a return to a more active M&A environment.