It’s not the rate, it’s the restrictions of borrowing Some amateurs focus on interest rates, thinking it's ok to borrow or carry some debt if it's cheap. However and especially lately, most companies are racing to pay off debt for the freedom.
A prime example is Gear Energy, they were handcuffed on returning cash or increasing cap-ex until Mr. Gillmore placed the last penny into the banks hand. His creative language in one of the news release was very strong and to the point.
First and most immediate is an externally mandated restriction imposed by one of Gear's syndicated lenders. During 2020 when Gear encountered a withdrawal of support by one of its lenders, Gear was required to solicit external support from other lending institutions. At the time, Gear was successful in including Export Development Bank of Canada ("EDC") into the lending syndicate. However, EDC's support was contingent on the inclusion of several restrictions including an inability to return capital to shareholders regardless of the position of the balance sheet.
Gear is now pleased to announce that the fall borrowing base redetermination has substantially been completed and the previous unsupportive lender will no longer be a participant.
Nothing about rates mentioned---- just the restrictions.
Banks are caught in the middle right now, they know the oil companies are responsibly paying off the debt according to the terms of agreement. But the image and social impacts of "supporting" oil and gas through loans is bad publicity.
All it takes is one bank to man up and say, "I don't care if some purple haired Vanessa glues her hands to our front doors, our job is to make money and help industry grow". Then maybe when one bank gets all the benefits of being open to such investments regardless of the opinion of a small "fringe minority" whom the media seems to have on speed dial, other banks may jump back in and act humane to its customers.
The world hasn't come to terms with accepting Canadian Oil and gas yet, but maybe $3-4 a litre will be the tipping point.
Im looking forward to Kenny and Savage's speech on Tuesday in Washington.