PwCCF Capital Markets Flash

Volume 2, Issue 16: May 1, 2009

In this issue:

Notable events this week | Notable M&A and financings this week | Notable restructurings and insolvencies this week | Aerospace & Defense ("A&D") in focus — 2009: A Space Odyssey | What does this mean for the year ahead? | Suggested action of the week

Come in ground control

A global flu pandemic fails to infect capital markets this week. Nearly all indicators improve with only minor weekly declines evident in others. The TED spread, a measure of perceived lending risk, remains at levels not seen since the commencement of the crisis, an encouraging signal that some confidence in the financial system is restored. Chrysler's historic bankruptcy filing, is however, a sobering reminder that this recession is not over.

This week, PwCCF's In Focus section profiles the Aerospace and Defense industry with a view to assessing what the flight path is for this critical Canadian sector.

PwC Credit Barometer: High


May 1, 2009 Crisis Extreme Sept 1, 2008 Pre-Crisis Extreme1 Week-over-Week
CDN$ / US$
$0.843 $0.771 $0.936 $1.091 up green
S&P 500
878 752 1,278 1,565 up green
9,497 7,725 13,300 15,073 up green
1.01% 4.82% 2.81% 1.11% down green
TED Spread3
0.86% 4.64% 1.10% 0.14% up red
1,154 895 1,293 1,335 down red
35 81 21 10 up red
Baltic Dry Index6
1,786 663 6,691 11,793 up green
WTI Crude Oil7
$53.20 $33.87 $111.55 $146.85 up green

Notable events this week

  • As the markets await next week's expected official public release of bank stress test results, initial rumblings suggest the potential need for additional capital.
    • Regulators have indicated that select American banks may need to raise more capital above regulatory requirements to weather a potential worsening of the economic recession. Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests.
  • Recent results show that the S&P/Case-Shiller 20-City Composite Index fell 18.6% year over year in February 2009. As of February 2009, average home prices are at similar levels to what they were in Q3 2003. From the peak in mid-2006, the 10-City Composite is down 31.6% and the 20-City Composite is down 30.7%.
  • The World Bank agrees to Mexico's request to release emergency credit of more than $200 million to fund its N1H1 flu programs.
  • The recent outbreak of N1H1 and the subsequent rise in the UN's risk assessment to Phase 5 has the US Fed concerned about a further negative impact on the global economy. To contain the virus, the Mexican government has ordered a shutdown of private business for five days.
  • The US Commerce Department announces that GDP dropped at a 6.1% annual pace, after contracting at a 6.3% rate in the last three months of 2008. The median forecast of 71 economists surveyed by Bloomberg News projected GDP would shrink at a 4.7% pace.
  • At this week's FOMC meeting, the Federal Reserve kept the federal funds rate target at a range of 0 — 0.25% and has refrained from increasing purchases of Treasuries and mortgage securities — perhaps signaling they may believe that the worst of the recession is behind us.
  • DBRS reports that the Canadian market for short-term debt is thawing after "the concerted efforts of the worlds' central banks and the G20 to provide liquidity and restore confidence clearly had the intended effect." This renewed appetite remains largely confined to short-term debt securities from governments, banks, and corporations with strong fundamentals and liquidity support. Canadian corporate short-term debt issues have increased by $1.1 billion since December, and evidence is accumulating that current demand is outstripping supply, which may have an impact on pricing in the future.
  • US claims for unemployment benefits unexpectedly fell last week, providing hope that the pace of layoffs may be slowing. According to the US Labor Department, initial claims for state jobless benefits fell 14,000 to 631,000.
  • GM announces its plan to focus on four key brands, close 16 US assembly, stamping and powertrain plants, and slash its Canadian and US dealership base by 42%. GM's plan offers the United Auto Workers a 39% equity stake if the union agrees to cut at least half of GM's $20.4 billion in health care obligations to a retiree medical fund. The US Government was offered a 50% stake for the forgiveness of approximately $10 billion of loans. GM's bondholders were offered a 10% stake for a debt to equity swap and GM's existing shareholders would own approximately 1%. GM's bondholders announced today that they want a majority stake in the restructured automaker in exchange for forgiving their $27 billion debt.
  • White House Chief of Staff, Rahm Emanuel, acknowledged that the government has gotten bigger since the financial crisis began, but that it isn't the desire of President Obama to make the larger role of government in society permanent. "The president doesn't want to have more at stake in individual companies [like GM] by the end of his term. His goal is to stabilize these industries or companies so they can make this transition to a different place..." "For the stability of the overall economy, the moment requires some key investments by the government."
  • Notable earning announcements this week continue to reflect global economic challenges, but with some faring much better than others.
    • Exxon Mobil Corp. reported a 58% drop in Q1 2009 net income primarily attributable to lower oil and gas prices and lower refining profits. Exxon posted a net income of $4.7 billion, down from $11.17 billion in last year's first quarter.
    • Dow Chemical reported Q1 2009 earnings of $24 million compared to $941 million in the same period a year ago. Andrew Liveris, CEO, stated, "Our positive earnings in this recessionary environment were the direct result of our rapid actions to reduce costs and tightly manage operations. We achieved profitability in spite of continued weak demand..."
    • Viacom Inc.'s first quarter profit fell 34% to $177 million, down from $270 million in the same period last year. The decline was primarily a result of falling ad and entertainment revenue.
    • Procter & Gamble Co.'s net income fell 3.6% for the fiscal third quarter amid charges on the sale of its Folgers coffee business and the effects of a stronger dollar. The company reported a net income of $2.61 billion for the quarter, down from $2.71 billion a year earlier.
    • Colgate-Palmolive Company reported Q1 2009 net income of $507.9 million, up from $466.5 million in the same period last year, while revenue fell 6% to $3.5 billion from $3.71 billion. The company's cost-cutting and efficiency programs, as well as increased pricing, more than offset the impact of higher raw and packaging material costs and the strengthening dollar.
    • Shoppers Drug Mart Corp. reported earnings of $107 million in Q1 2009 compared to $101 million in the same period last year, significantly beating analyst expectations.

Notable M&A and financings this week

  • Goldman Sachs agrees to extend the lockup-period for 13.2 billion shares in Industrial and Commercial Bank of China (ICBC) until April 2010. Recently, Allianz SE and American Express Co. sold a combined $1.9 billion of shares in ICBC as a lockup on their stakes ended, cutting their holdings by half. The sales, to private investors, were made at a 4% discount to market price.
  • ArcelorMittal, the world's biggest steelmaker, plans to raise $3.5 billion from a sale of shares and bonds to accelerate the company's debt reduction program. The company, which reported a second straight quarterly loss this week, will sell $2.8 billion of common shares and $700 million of convertible bonds. Should the underwriters exercise their over-allotment options, total amounts raised will equal $4 billion.
  • The US Treasury plans to sell a record $71 billion in quarterly auctions of long-term debt next week as the government seeks to finance its fiscal stimulus and rescue programs. Increased bond sales will lengthen the duration of outstanding federal debt and will help hold down interest costs as the government finances its record deficit.
  • Viterra Inc. confirms plans to raise $450 million through a bought deal subscription receipt offering. The proceeds of the offering will provide a portion of the funding that may be required should Viterra determine that it will proceed with the acquisition of ABB Grain Ltd. Viterra has made a $1.4 billion offer for ABB Grain Ltd.
  • Apollo Global offers to purchase BPP Holdings, a British education and training company, for $447 million, representing a 70% premium to BPP's closing price on Tuesday.
  • Citigroup reaches an agreement to sell certain parts of its Japanese operations to Japan's Sumitomo Mitsui Financial Group. The sale includes Nikko Cordial Securities, Citigroup's retail brokerage unit, and some operations of Nikko Citigroup, a wholesale investment bank.
  • William Morris and Endeavor, two of the entertainment industry's largest talent agencies, agreed on a merger. The merger ends a period of relative stability among the major agencies, raising the possibility of further consolidation and expansion into new lines of business involving finance and digital distribution.
  • New Flyer Industries Inc. has entered into a $180-million credit facility agreement with the Bank of Nova Scotia and a syndicate of leading US financial institutions.The new credit facility refinances New Flyer's existing senior credit facility, which was scheduled to mature in August 2009.
  • Kohlberg Kravis Roberts has emerged as the clear favorite to acquire Oriental Brewery, the South Korean brewer owned by Anheuser-Busch InBev, after it had raised its bid to $1.9 billion.
  • The government of Quebec has joined the workers, suppliers, and city of Baie Comeau in helping Alcoa to withstand the economic slowdown by agreeing to a $50-million loan to preserve jobs. Aluminum prices have fallen as demand from such key sectors as automotive and construction sectors has slowed.

Notable restructurings and insolvencies this week

  • In a historic turn of events, Chrysler LLC, supported by $10.5 billion in financing from US and Canadian governments, files for Chapter 11 to reorganize into a more viable carmaker in a partnership with Fiat SpA. Chrysler listed total assets of $39 billion and liabilities of $55 billion yesterday, making its bankruptcy the fifth largest in U.S. history. Despite receiving support from four major banks, which hold approximately 70% of Chrysler's debt, a small group of bondholders rejected the US Treasury's sweetened offer of $2.25 billion or US33¢ on the dollar.

    The new ownership will be as follows:

    • The United Auto Workers Voluntary Employee Benefit Association will receive a 55% stake, administered by the US Treasury
    • The US Treasury will receive a 8% stake
    • The Canadian Government will receive a 2% stake
    • Fiat begins with a 20% stake, and the opportunity to increase its equity by up to an additional 15% if it introduces efficient engines to be built in the US and rolls out a car that gets 40 miles a gallon. Later, it could take a controlling stake if certain conditions are met.
    • The US government will name four Chrysler board members; Fiat three; the UAW one; and the Canadian governments one.
  • Chrysler announced it will suspend production as of Monday at most of its US factories and recommence when its bankruptcy restructuring is completed within 30 to 60 days. The filing will test the fragile automotive supply and dealer base. Suppliers of auto parts stand to be among the most affected by Chrysler's filing and production stoppage as their current receivables and future revenues are uncertain. Chrysler's 3,200 dealers across North America also stand to be affected due to rationalization and potential lack of inventory.
  • The Tropicana casino in Atlantic City, New Jersey, files for bankruptcy after winning regulatory permission to try and sell the resort to Carl Icahn and other investors. The bankruptcy is necessary for a "free and clear" sale of the casino, which is operating profitably. The auction may generate multiple bids. Unless a more valuable offer comes in, many lenders (including Icahn) who bought the debt at a discount may take over the Atlantic City hotel in exchange for canceling at least $200 million in Tropicana debt.
  • Nortel Networks Corp. was granted a 90-day extension of its court protection from bankruptcy until July 30, 2009. The stay of creditor litigation allows Nortel to continue work on a restructuring strategy under the CCAA.
  • US Shipping Partners LP files for Chapter 11 due to a significant drop in demand and increased competition. The filing is a part of the group's "pre-arranged restructuring plan" and is expected to reduce its leverage and liquidity.

Aerospace & Defense ("A&D") in focus — 2009: A Space Odyssey

The A&D industry demonstrated resilience through the early days of the credit-crisis, driven largely by strong liquidity, relatively low debt levels and satiated order pipelines. However, a combination of demand-side weakness, tight credit, volatile currency and fuel prices, and bankruptcies in the airline industry have finally taken their toll. The S&P 500 Aerospace and Defense Index has now declined 44% from pre-crisis highs of 469, in line with the S&P composite.

As set out in the tables below, Boeing and Airbus orders (net of cancellations), a leading industry indicator, have decreased by 98% from a pre-crisis high of 2,871 orders in 2007 to an annualized low of 53 orders in 2009. Boeing and Airbus backlogs, subject to revisions, currently remain strong at 7,196 orders.

Airbus & Boeing Aircraft Orders

Aerospace and Defense in 2009 — Grounded

Not unlike other industries, A&D related news in 2009 has centered on order cancellations, production and expenditure cuts, restructuring initiatives and layoffs. Recent notable announcements include:

  • Canadian component designer and manufacturer, Mecachrome International, obtained CCAA protection in December 2008 and has since announced securing a €30 million commitment to finance its operations, including a €20 million DIP facility. Bankruptcy filings are not prevalent amongst OEMs, but are common among A&D end users as 22 airlines have filed in the past 12 months.
  • Demand side weakness has prompted workforce cuts. General Dynamics, Boeing, and Cessna announced reductions of 1,200, 10,000, and 5,900, respectively.
  • OEMS are adjusting production. Boeing is cutting its annual B777 production from 7 to 5 per month, Airbus is cutting its high volume A320 from 36 to 34 a month, Cessna has announced a planned two-week shutdown, Bombardier is cutting production levels by 25% and Gulfstream expects deliveries to decrease by 55%.
    • These cuts have not made their way through the system as yet, with some arguing that suppliers will feel the impact of OEM cutbacks in Q3 and Q4 2009.
  • Recent earnings announcements by major OEMs were mixed with bellwether Boeing announcing a 50% decrease over the same quarter in the prior year, General Dynamics announcing a 3% increase and Bombardier announcing a 56% increase.
  • Pension plan deficits have been reported by a number of A&D key players, including Lockheed Martin, Raytheon, Northrop Grumman and General Dynamics. In fact, as of January 1, 2009, Lockheed Martin's pension plan had a $9.1 billion deficit, the largest globally.
  • There are pockets of optimism: Bombardier, for example, recently signed 50 new orders for their fuel efficient C-Series aircraft for delivery in 2013, Boeing is working towards completion of its much anticipated 787 Dreamliner (with a 900 order backlog) and Airbus is continuing with the development of its A350XWB aircraft and production of the A380.

Why the sudden nosedive? — The danger zone

There are two co-pilots on the A&D downward trajectory.

  1. Credit market weakness decreases end-user purchasing power.
    • The key end-users in the A&D industry are airline carriers and government. Both of these buyer groups have capital constraints and diminished capacities to finance A&D spend.
    • Due to the strong order backlogs, it took some time for this end user weakness to manifest itself.
  2. Volatility in fuel prices erodes end-user profitability.
    • Oil prices are a key factor in airline profitability and typically account for 30% of airline costs. Typically, low oil prices improve profitability for carriers and operating costs for governments, which may spur demand for new production. Despite low oil prices, a number of airlines hedged costs forward in 2008 and have not realized the benefits of lower oil prices.
    • Conversely, "prohibitively" high oil costs may incent carriers and governments to invest in next-generation fuel efficient technologies. This largely supported demand for new aircraft last year.
    • Fluctuations between $147 and $33 in only six months have resulted in some "inertia" as there is uncertainty regarding what purchasing or production strategies are best.

What does this mean for the year ahead?

A&D Financing in Canada — Top guns only

There are currently three main types of debt financing available to the Canadian A&D sector:

Bank debt

  • While OEMs largely rely on export credit agencies for much of their sales financing, Schedule 1 banks are sources of investment and operating capital. These institutions remain highly selective in refinancing and extending new loans to the universe of small-medium suppliers that occupy the Canadian A&D market.
  • Improving credit conditions in Canada mean the market is now open for the "right" firms. While there have been too few deals in Q1 2009 to generalize, expectations are for high rates and upfront fees, tight credit parameters, currency hedging requirements and more onerous order pipeline due diligence.
  • Banks will likely prefer companies with long-term order commitments, especially government contracts and/or interests in jurisdictions, which are not expected to change governments or experience political intervention.
  • Although bank financing is available, the era of banks providing loans for leveraged acquisitions is clearly over.
    • In 2007, over $8 billion in leveraged financing across 24 facilities was completed in the global A&D space, including a $1-billion syndicated facility led by Lehman for the Carlyle Group's LBO of Sequa Corp. In 2008, LBO financing volumes dropped to just over $2 billion across eight facilities and, in 2009, there has been no A&D leveraged loan activity.
    • It is interesting to note that leveraged activity was not a major feature of the Canadian A&D market. Only 8.5% of the total $8 billion in global leveraged loan volume in 2007 was attributable to Canadian companies, the most notable deal being Sageview's $677-million acquisition of Air Canada Technical Services (now known as AVEOS). This transaction was also led by now-bankrupt US lender Lehman Brothers.

Public debt

  • Although the public debt markets were frozen in Q4 2008, successful issuances by investment-grade A&D companies in 2009 suggests renewed investor appetite for public A&D debt.
  • The A&D sector is clearly in favour, as recent investment grade issuances in the sector have been completed at relatively attractive spreads. Standard & Poor's investment-grade composite, as of April 30, stood at 421 bps, with industrials notably wider at 738 bps. In comparison:
    • On April 7, Finneccania completed a $400 million (GBP) issuance of 10-year senior notes at a spread of 470 bps over comparable government debt.
    • On March 10, Boeing completed a three-part debt issuance totaling $1.85 billion. The spreads over comparable government notes on the 5-, 10- and 30-year maturities were 310 bps, 320 bps, and 330 bps, respectively.
    • There have been no notable Canadian bond issuances in the A&D sector in 2009. However, this is not unusual, as Canadian A&D firms typical rely on other means of financing.
  • High yields with relatively lower risk should continue to attract investors to the public debt markets, prompting some to suggest that tapping public debt markets will be a more popular strategy for A&D firms, even in non-traditional markets such as Canada.

Alternate sources of debt

  • Companies unable to secure traditional bank or public market financing may have to rely more heavily on alternative sources and structures. Expectations are for an increasing number of firms to turn to:
    • Sovereign Wealth Funds: Established funds in the Middle East and China have expressed interest in the A&D sector. The multi-billion dollar size of such funds suggests that these players will be key sources of capital.
    • Export Credit Agencies (ECA): Global ECAs are increasing their backing of aircraft financing activity to support key export items in 2009. In fact, Airbus CEO Louis Gallois expects ECA's to guarantee 50% of aircraft sales going forward (20% in 2007) Given that 80% of Canadian A&D output is exported, the Export Development Corporation of Canada's continued support of the sector will be a critical, especially for OEMs.
    • Strategic Partnerships: Agreements whereby large OEMs lend to gain access to a strategic technology, supplier or market and joint project ventures, may become a popular method of conserving capital while pursuing growth.

A&D Mergers & Acquisitions — Flying low

  • In line with the general M&A market, 2008 deal value in the A&D sector declined by 56% to $14.3 billion from $32.9 billion in the prior year (with the majority of the decline attributable to an 83% drop in year over year Q4 activity). Visit our global website to obtain "Aerospace & Defense Deals* 2008 Annual Review", a comprehensive analysis of 2008 deals. (
  • Q1 2009 A&D M&A activity shows signs of returning to altitude. Year to date, PwC has observed 47 announced deals. As set out in the table of select deals below, transactions with disclosed metrics were completed at an average multiple of 4.7x EBITDA, as compared to pre-crisis norms of 8x or higher.

Going forward, PwCCF expects four key M&A trends for 2009:

  • Small-medium size deals driven by strategic buyers: Consistent with expected general M&A trends, the absence of leveraged lending and bias for capital preservation will likely mean "mega deals", especially those driven by PE firms, will not happen. In fact, PwC reported that by Q4 2008, average disclosed deal value was just US$22 million, the lowest in seven years. 2009 year to date observed average deal value is $44 million, an improvement over the prior quarter, but still below pre-crisis highs of well over $100 million.
  • Deals in key strategic sub-sectors, such as MRO: PwC expects A&D companies to take advantage of attractive acquisition valuations to acquire key technologies, especially those with the ability to improve end-user efficiency. Companies in maintenance, repair and overhaul (MRO) sector, for example, are expected to be attractive targets. Large OEMs may acquire pure-play MRO companies as part of an industry-wide trend of moving towards a "lease and service" business model, rather than an "outright sale" business model. This bodes well for Canada, where a cluster of MRO companies generate more than $3 billion in annual revenues.
  • M&A as a tool to manage customer and supplier risk: PwC anticipates that 2009 orders will result in undercapacity — a major risk for small- to medium-size enterprises (SMEs) that often do not have the resources to weather prolonged order reductions. This market dynamic has two M&A impacts. The first is expected consolidation among SME market players that may merge to aggregate customers, reduce risk and achieve economies of scale. The second is an increased likelihood that OEMs will acquire SME suppliers to ensure that supply chains are uninterrupted.
  • M&A as a tool for deleveraging: Especially in the case of diversified manufacturers, divestitures of non-core A&D divisions or assets may be a key component of debt reduction strategies. Unlike other industries, pure-play A&D companies, by and large, were not highly leveraged and, as such, volumes of this type of M&A are not expected to be extraordinary.

General expectations — Afterburners?

In addition to the financing and M&A trends noted above. PwCCF also expects a number of other general industry trends to impact A&D capital-market conditions.

The large commercial segment will weather the storm

  • Although there are grave concerns about the impact of demand-side weakness in the commercial segment, an offsetting dynamic is the fact that most manufacturers operate with multi-year backlogs. Fitch estimates that the current global backlog is 7,400 commercial aircrafts (equivalent to approximately six to seven years of production).
  • The term "committed backlog" can be misleading given that, ultimately, if a customer cannot obtain financing for new aircraft or has insufficient passenger demand, there is little value if the OEM continuing to manufacture the order book. As a result of this disconnect, we may witness an increased incidence of "white tails" — manufactured planes with no buyers.
  • Until passenger demand rebounds, it is unlikely that there will be a significant increase in orders for LCA. The latest data released by the International Air Transport Association (IATA) for March 2009 is not encouraging. Overall, global passenger demand is 11.1% below March 2008 levels.
  • The IATA also announced that airlines cut international passenger capacity by 4.4% in March 2009, resulting in an average load factor of 72.1%, 5.4% below the average load factor recorded in March 2008. It should be highlighted that North American airlines began aggressive capacity cuts in mid 2008 in anticipation of the downturn. As a result, the US commercial airline industry is expected to emerge from the downturn better than in other G-7 nations.
  • The Canadian A&D industry is highly oriented to commercial markets, with 78% of industry output devoted to this sector. Relative strength or weakness, therefore, will be felt across the Canadian A&D industry.

Significant weakness expected in the business jets segment

  • The business jet segment is considered to be the most vulnerable A&D subsector.
  • Fitch expects that global deliveries will decrease 30% between 2009 and 2012 as a result of higher used inventories, weak corporate profits, forecasted world GDP contractions, lack of financing and the political pressure on corporations not to spend excessively on corporate jets.
  • Demand drop offs in excess of 30%, as are expected by many, will cause severe collateral damage to business jet suppliers.
  • Overall, PwCCF expects this weakness to translate into an upsurge in business jet-related restructuring and insolvencies, especially in the SME segment.

Government pull-backs in the defense sector

  • With a multi-trillion dollar US stimulus package directed at financial system bailouts, and numerous similar global government initiatives, the eight-year US defense spending bonanza has likely come to an end. Even optimists expect only modest core budget growth and declining supplemental spending.
  • Early this month, US Secretary of Defense Robert Gates recommended a full overhaul of the US Government approach to defense procurement with a stated goal to reduce support service contractors and cost over-runs.
  • Canadian defense spending has traditionally not been a key driver for the Canadian A&D sector. However, some developments in US defense spending are positive for Canada. In his budget speech, Gates reiterated his support for the F-35 Joint Strike Fighter and military helicopter — excellent news for Canadian firms Héroux-Devtek and Magellan Aerospace, (both manufacture parts for the still-in-development F-35) and for Northstar Aerospace and Vector Aerospace, which supply the helicopter markets.

Significant "financing gaps" for end users

  • Fitch calculates that the financing required for 2009 deliveries of large commercial aircraft and regional aircraft could total $65 billion to $70 billion.
  • Fitch also estimates that approximately $10 billion of existing airline debt is maturing in 2009 and 2010 in the US alone.
  • Typically, end users of aircraft relied on the highly leveraged financing structures that have vanished. As a result, many expect that an increased incidence of vendor financing will be required to support commercial aircraft sales and maintain deliveries. Both Boeing and Airbus, for example, have announced that they intend to step up such financing.
  • The question of how this aggregate level of financing will be accessed, especially for troubled carriers, looms large — the key risk being delivery deferrals or even cancellations.

Increased grounded and used aircraft with residual value declines

  • Many point to the unprecedented levels of grounded commercial aircraft as a grim indicator of near-term weakness. The number of grounded aircrafts is three times what it was at the height of the 9/11 crisis. Currently, 2,300 jet airlines are grounded, with 1,167 groundings in the last year alone. Chris Seymour, Ascend consultant notes: "The aviation fleet data shows that at least 400 more aircraft are scheduled to be cut during 2009, with groundings being announced almost daily."
  • Oversupply may have a significant impact on plane makers, engine manufacturers and their related suppliers. In addition, oversupply may indirectly result in deferral or cancellation of new fleet orders and has already depressed aircraft valuations and lease rates.

Suggested action of the week — Be a maverick, not a goose

Identify key lenders, customers and suppliers. Build innovative and collaborative relationships with these key stakeholders with a view to "sharing" risk. Continue to make investments in R&D, focusing on strategic technologies.


  1. Over five-year period.
  2. BBA US LIBOR, three month.
  3. Difference between rates on interbank loans and three month US Treasuries. Indicator of perceived credit risk.
  4. Mirrors market weighted performance of leveraged loans. Tracks returns in leveraged loan market.
  5. An expectation of the market's 30-day volatility, measured by tracking the money calls on companies in the S&P 500. Historically, VIX values greater than 30 are associated with high volatility and values below 20 are associated with low volatility.
  6. An indicator that predicts future economic activity by measuring global shipping supply and demand for commodities, such as building materials and coal.
  7. West Texas Intermediate (WTI), also known as Texas Light Sweet, is a type of crude oil used as a benchmark in oil pricing and the underlying commodity of New York Mercantile Exchange's oil futures contracts.

All dollar amounts are expressed in US dollars, unless otherwise indicated.

Sources: Bloomberg, Reuters, Capital IQ, Dow Jones International News, The Financial Post, Bank of Canada, Scotiabank, Financial Week, Barrons, The Globe and Mail, PR Newswire, International Herald Tribune, Wall Street Journal, New York Times, FT Alphaville, The Daily Telegraph, Financial Post, The Associated Press, Marketwatch, The Washington Post, TD Securities, International Herald Tribune, S&P LCD, Modaq Business Briefing, Bank of England, Debtwire, Bank of Canada, US Federal Reserve, Desjardins, Deutsche Bank, The Loan Syndications and Trading Association (LSTA), CNBC.