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TD Bank, best known for its massive retail branch network, is winning a reputation in Calgary as the go-to lender for ambitious energy companies.Jeff McIntosh/The Canadian Press

A generation ago, Toronto-Dominion Bank built a lucrative business as the lender of choice to North American telecom and cable companies.

Now the bank, best known for its massive retail branch network, is winning a reputation in Calgary as the go-to lender for ambitious energy companies. TD Securities quarterbacked $9-billion of loans, along with JPMorgan Chase Bank and Bank of Nova Scotia, that allowed Canadian Natural Resources Ltd. to snag Shell Canada Ltd.'s oil sands assets on Thursday and strengthen a Canadian champion in the oil and gas sector.

For TD shareholders, the beauty of the Canadian Natural deal is that it carries far less risk than loans the bank made in the past. The evolution of deep, supportive credit markets allows the bank to commit significant capital to its client's acquisitions without taking on the risks that tripped up TD in 2002, when the cable and telecom sector hit hard times and a big chunk of the loan book was written down.

Shell made no secret of its plans to raise up to $30-billion (U.S.) for asset sales and Canadian Natural executives explained Thursday that negotiations with Shell played out relatively quickly over the past few months. Sources close to the company said Canadian Natural management, including co-founder and guiding light Murray Edwards, wanted to nail down the acquisition while Suncor, the other logical bidder on Shell's oil sands assets, was tied up with the integration of last year's takeover of Canadian Oil Sands. Companies moving quickly to do acquisitions need banks that are willing to commit their balance sheet.

Canadian Natural is paying for this acquisition by issuing $4-billion (Canadian) of stock to Shell, shares that increased in value by almost 10 per cent Thursday, which translates into a $400-million windfall for the seller. Shell is only required to hold on to those shares for four months. The Calgary-based company is also taking out a $3-billion term loan and $6-billion in what's known as a "bridge facility." TD gets bragging rights on these loans: TD Securities is "sole underwriter and bookrunner" while JPMorgan and Scotiabank are "joint lead arrangers and co-syndication agents." This is a landmark transaction for JPMorgan; the investment bank also advised Shell.

But the bulk of the debt won't stay on bank balance sheets for long. Lenders plan to flip the $6-billion of bridge loans into Canadian Natural corporate bonds sold to investors as quickly as possible, eliminating the risk of carrying significant credit exposure to a single energy company. That's what TD failed to do in the past with its portfolio of loans to telecom and cable companies, in part because credit markets weren't receptive to large bond sales from Canadian companies.

How deep is the credit market today? There have been $1.3-billion of bond sales by Canadian energy companies so far this week: Gibson Energy Inc. raised $350-million, Husky Energy Inc. sold $750-million of bonds and Vermilion Energy Inc. borrowed $300-million (U.S.). In an investor presentation Thursday, Canadian Natural said: "Bond market strength provides high confidence in [our] ability to access markets prior to close."

"The energy sector of the corporate bond market is on fire," said Jean-François Godin, fixed income analyst at Desjardins Securities. "Canadian Natural is a high-quality name and will have no difficulty selling debt, as lower-rated companies are raising significant amounts."

Banks and bond fund managers will also take comfort from Canadian Natural's plans to take a conservative approach with its balance sheet and pay down debt quickly. Corey Bieber, chief financial officer at Canadian Natural, said Thursday during a conference call: "The pace of debt reduction is quick and visible. We can see a clear path to again having the financial muscle and metrics we enjoyed in a $100 oil world."

Done right, corporate lending is a good business for banks. TD's strategy is focused on its retail platform, but the bank has a strong tradition of putting its balance sheet to work for clients. That legacy is burnished by a $9-billion (Canadian) commitment to Canadian Natural, loans that made a transformative deal possible, while carrying risks that the bank can deftly manage.

Fort Hills will be completed in late 2017. It cost $15.1-billion and will produce 180,000 barrels of bitumen per day when production begins

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 1:04pm EDT.

SymbolName% changeLast
TD-T
Toronto-Dominion Bank
-1%81.45
TD-N
Toronto Dominion Bank
-0.73%60.2
CNQ-T
Canadian Natural Resources Ltd.
+0.57%103.02
CNQ-N
Canadian Natural Resources
+0.82%76.09

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