Business Development Bank of Canada Rating Affirmed At 'AAA'; Outlook Is Stable

  • We are affirming our 'AAA' long-term issuer credit and senior unsecured debt ratings and our 'A-1+' short-term rating on Business Development Bank of Canada (BDC).
  • The ratings reflect our assessment of BDC's critical role in supporting Canadian entrepreneurship by providing financial and management services to small and medium enterprises and its integral link with the federal government.
  • The stable outlook reflects that on Canada.
TORONTO (S&P Global Ratings) Dec. 7, 2018--S&P Global Ratings affirmed its 
'AAA' long-term issuer credit and senior unsecured debt and 'A-1+' short-term 
ratings on Business Development Bank of Canada (BDC). The outlook is stable.

The stable outlook on BDC mirrors that on Canada, and reflects S&P Global 
Ratings' expectation that, over the next two years, the bank will continue to 
play a  critical role in the government's economic policy, and the link with 
the government will remain integral to BDC.

Changes in policy that could result in a material weakening of the 
government's support for the bank's role could lead us to reassess our view of 
BDC's role and link. This, in turn, could lead us to detach the ratings on the 
bank from those on the government and assign a stand-alone credit profile to 
BDC. A downgrade to Canada would also lead to a downgrade to the bank under 
our government-related entities (GRE) criteria.

The ratings on BDC reflect S&P Global Ratings' assessment of the following 
factors:
  • The bank's critical role in supporting Canadian entrepreneurship by providing financial and management services to small and medium enterprises (SMEs) and its integral link with the Government of Canada (AAA/Stable/A-1+);
  • The likelihood of BDC receiving timely and sufficient extraordinary government support being almost certain; and
  • The bank's status as a Crown corporation (an agent of Her Majesty in right of Canada).
We view BDC as a GRE because we believe it would benefit from extraordinary 
government support if it were in financial distress. Following our GRE 
criteria, we view the likelihood of the bank receiving extraordinary 
government support as almost certain. We base this on our assessment of the 
BDC's critical role in supporting Canadian SMEs and entrepreneurs, and their 
importance to the national economy. The likelihood also reflects our 
assessment of the integral link between the government and bank, as seen in 
the government's appointment of the board of directors and approval of BDC's 
strategic direction and direct call on the government for the bank's 
borrowings. 

Based on the Business Development Bank of Canada Act, the Canada Financial 
Administration Act, and other relevant laws, we believe BDC's borrowings 
benefit from a timely, irrevocable, and unconditional government support 
similar to a guarantee, but stronger. Although we understand nonborrowing 
liabilities arising from the bank's business activities do not enjoy the same 
legal status as its borrowings, we nevertheless judge the likelihood of 
government support for nonborrowing liabilities as almost certain under our 
GRE criteria.

We have not assigned a stand-alone credit profile to BDC because of our 
assessment of the almost certain likelihood of extraordinary government 
support. We believe the bank's operations are strategically important to the 
government and that the government's support is not subject to transition 
risk. Accordingly, we have equalized our ratings on BDC's debt with those on 
its parent entity, Canada. BDC's operations are aligned with the Government of 
Canada's priorities, including building the country's economy as a center of 
global innovation, supporting high-tech businesses and women entrepreneurs.