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Corporations just aren't borrowing short-term

Three years after the worst of the financial crisis, Canadian companies continue to stay away from the short-term debt market.

Yet again in 2011, the total amount of commercial paper issued by corporations dropped, this time falling to $26-billion. That amounts to less than 10 per cent of the total Canadian market, according to a new report by DBRS Ltd. The firm also notes that corporate volumes have now dropped more than 50 per cent from their pre-crisis levels.

As a percentage of the total market, the drop isn't that staggering. Even at the pre-crisis peak, corporate funding accounted for only about 15 per cent of the market, whereas the federal government and federal agencies made up about 40 per cent. But it's still significant, and corporate issuance has now dropped to a level not seen since the 1990s.

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But this isn't all bad news. Part of the reason Canadian companies aren't borrowing short-term is because they are flush with cash -- to the tune of more than $500-billion in cash and short term investments. But it is troublesome because the drop proves that companies need less working capital as they sit on their hands and wait out the economic recovery.

To understand just how much the market has shrivelled, DBRS noted that from July 2007 to December 2011, total non-government volumes in Canada plummeted by about $125-billion, while government issuance has risen about $60-billion over the same time period.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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