The new BDC Capital bridge financing program

Franck Marvel Ngandui [1]
ROBIC, LLP
Lawyers, Patent and Trademark Agents

On April 9, 2020, the Business Development Bank of Canada (BDC) announced the launch of a new support program for Canadian venture backed companies specifically affected by the COVID-19 crisis.

The new “Bridge Financing Program” (the “Program”) is intended, among other things, to provide support to companies affected by the COVID-19 crisis, but do not qualify for the various programs and relief measures put in place by the federal government.

Under the Program, BDC Capital, BDC’s investment arm, could, using convertible notes, match a current financing round raised through qualified existing and/or new investors for the benefit of an eligible company.

Eligible Companies

To be eligible for the Program, the companies shall:

• – Be based in Canada, i.e.,
  • be incorporated under the laws of Canada (federal or provincial);
  • have substantial Canadian operations; and
  • have executive officers that ordinarily reside in Canada.
• Be financed by a qualified venture capital investment firm;
• Have raised at least $500,000 in external capital before applying to the Program;
• Have suffered negative impacts as a result of the COVID-19 crisis, which include, among others,
  • Decrease in sales or revenues
  • Major supply chain issues;
  • An increase in the burn rate; or
  • A decrease in the runway period.

• Be in advanced discussions to launch a round of venture capital financing of at least $250,000;
• Have at least an 18-month runway following BDC’s investment; and
• Have a plan to bounce back from the COVID-19 crisis.

In addition, BDC clarified that companies already benefiting from other relief measures would not be disqualified from the Program. For example, a company benefiting from the federal government’s emergency wage subsidy could also be eligible for the Program. As of today, BDC estimates that approximately 100 companies could be eligible for the Program.

Qualified Venture Capital Firm

In the interest of efficiency, BDC wishes to rely on the expertise of the venture capital investment firms already integrated in BDC’s network in order to accelerate and facilitate the due diligence process and the closing of the financing. With that being said, other venture capital firms will be able to qualify as long as they meet the criteria determined by BDC, which include, among others, being financed by an institutional investor.

Investment Terms

BDC undertakes to invest an amount equivalent to, on a 1:1 basis, the amount committed by the investors syndicate. Although BDC has indicated that eligible rounds of financing must be at least $250,000, there is no maximum at this time. In addition, it should be noted that the due diligence process is expected to be more rigorous for financing rounds over $3,000,000. BDC’s investments will be made in the form of convertible notes with standard terms, which include, among others, the following terms and conditions:

• Amount: BDC could, at its sole discretion, invest an amount to match all or part of the amount invested by the investors syndicate;
• Maturity Date: 36 months following the issuance of the note;
• Interest Rate: This rate will be equivalent to BDC’s base interest plus 4%;
• Security: BDC intends on obtaining a security that would rank in accordance with its registration date but that would, in any event, be senior to any shareholders loan;
• Prepayment: Allowed with BDC’s consent;
• Conversion Rights: Although the objective is for the company to entirely reimburse the note at maturity, the note will be convertible at BDC’s option following the occurrence of various triggering events; and
• Discount: BDC will require a 20% discount upon conversion following the occurrence of a triggering event.

BDC reserves the right to require more advantageous terms and conditions in line with the terms and conditions that could be offered to the investors syndicate.

How to be admitted to the Program

Venture capital investment firms are encouraged to identify potentially eligible companies within their portfolio and to contact BDC at VCReliefProgram@bdc.ca. Further details and precisions will be provided by BDC in the coming days. In the meantime, if you have any questions about the Program, please do not hesitate to contact one of the members of our Transactional and Business Law team.