www.lexpert.ca/usguide-corporate/ | LEXPERT • June 2015 | 23
famously debt averse.
People still talk about the lessons learned from Dome
Petroleum, which grew by acquisition to become the
country's largest independent. A bloated Dome sank on
debt when world oil prices plunged in 1986, and one of
Canada's former crown jewels ended up being sold off
to Amoco Corp.
at conservatism means the normal leverage for oil
and gas companies is two times debt to cash fl ow, unlike
in the United States where the leverage can run at six
or seven times. And Canadian explorers and produc-
ers tend to get their fi nancing from banks or banking
syndicates, which don't typically sell debt to third
parties for their own balance-sheet purposes. ey're
more likely to restructure the company or extend and
pretend on the loan.
Bank cooperation comes at a price, says John Sabine, counsel
in the Toronto offi ce of Bennett Jones LLP. And the price can be
steep. "In exchange for an extension of your debt or waiver of a
covenant breach they're charging more fees and piling it on to the
debt. So you can end up with a huge pile of debt with your banker
sitting there."
Sabine uses the example of a company with a $100-million
debt obligation with a number of tests and a stipulation that the
capital structure.
"In Canada, people have been saying the sky is falling in the
mining sector for the last fi ve years, whereas it's been more like
fi ve months in the oil and gas space. ey're earlier in the cycle,
but it's going to happen. So I think the oil and gas space is the one
to watch, that's where the interesting games will be played."
Companies in Canada's oil patch are fundamentally diff erent
from their US counterparts in one very important way: ey are
RESOURCE DEALS
»
"There's been a lot of interest
from US private equity but it
seems to be very diffi cult to get
deals done. That's a big part
of the distressed deal story."
John Turner
Fasken Martineau DuMoulin LLP
