Issuer: Export Development Canada (EDC)
Foreign Currency Long-Term Senior Debts: AAA (Stable)
Local Currency Long-Term Senior Debts: AAA (Stable)

Issues Amount (bn) Issue Date Due Date Coupon Rating
Japanese Yen Floating Rate Bonds - First Series (2009)
JPY 31.6 Feb. 26, 2009 Feb. 26, 2014 3M JPY Libor+35bps AAA

JCR has affirmed its AAA ratings on the foreign currency and local currency long-term senior debts of Export Development Canada (EDC). The outlook of the ratings is stable. JCR has also affirmed its AAA rating on the Japanese yen denominated bonds issued by EDC.
The ratings reflect EDC's status as a Crown Corporation wholly owned by the Canadian federal government (JCR rating: AAA/Stable) and a strategically important role it plays in Canada's international trade policy. Furthermore, all liabilities of EDC are legally ascribed to the Canadian government.
The rating outlook is stable. EDC continues to play a central role in facilitating Canadian exports as a Crown Corporation. In response to the global financial turmoil, the government broadened EDC's mandate to support domestic finance for at least two years in its stimulus measures. Any other changes in EDC's legal status, such as privatization, are not in prospect for the present.

1. Strong government support
EDC is supervised under the Financial Administration Act (the FA Act) and is obliged to submit its annual report and financial plans to the parliament through the Minister of International Trade. Under the FA Act, EDC's liabilities are directly ascribed to the government. The fact that it can borrow money from the Consolidated Revenue Fund (the Fund), which is the aggregate of all public money such as tax revenues, under terms and conditions set by the Minister of Finance, illustrates the government's strong support of EDC. To date, EDC has never borrowed money from the Fund.
Within more than forty Crown Corporations, EDC plays a central role in the country's international trade finance. To ease the impact of global financial turmoil, the government implemented some of its stimulus measures through EDC until March 2009. Firstly, it broadened EDC's mandate for two years to cover domestic trade finance and insurances (up to C$3 billion under the budget). This is intended to allow EDC to complement lending and insurance of private financial institutions and the Business Development Bank of Canada (BDC). Secondly, it raised EDC's contingent liability limit to C$45 billion from C$30 billion, allowing it to meet growing demand for insurances and guarantees. Thirdly, EDC's authorized capital limit was doubled to C$3 billion from C$1.5 billion. The government has already injected C$350 million into EDC's share capital.

2. EDC registers record volume in 2008
EDC's volume of export loans and insurances in 2008 increased by a 23% on year to a record C$85.8 billion as demand for its financial services grew amid the worsened liquidity position of the private sector (EDC estimated that it contributed to generating around 4.4% of Canada's GDP in 2008). EDC's recent revision of its business procedures aimed to improve productivity and offer better customer services has enhanced its capacity to meet the growing demand. Furthermore, EDC has increased the number of its representative office across Canada and overseas. In particular, it has opened fourteen offices in ten emerging countries. EDC's operational strategies consist of three pillars: connecting Canadian exporters and investors, facilitating an integrated promotion of international trade, and strengthening its own organization.

3. Solid financial structure and prudent risk management
While EDC has relatively riskier borrowers, it keeps its asset quality sound under its prudent risk management policy. It also has sufficient capital to absorb risks.
EDC's outstanding balance of the lending exposure (loans, commitments and guarantees) at the end of 2008 was up by a steep 54 % on year, as the demand for its financial services grew mainly in the private sector amid deteriorating economic environment. The share of private-sector lending exposure rose to 94% from 92% a year before. Lending exposure to the private sector were rather concentrated in the aerospace, extractive and surface transportation sectors, which altogether accounted for nearly 70% of the total. The sovereign-sector lending exposure was diversified, except China alone had a share of over 30%.
The credit quality of the loans in 2008 remained generally unchanged from the year before. The impaired loan ratio improved slightly to 2.9% at the end of 2008 from 3.1% a year earlier. While the volume of impaired loans increased by 50%, mostly attributable to the aerospace industry, the total loan balance grew even more steeply by 62%. EDC set aside specific and general allowances enough to cover more than twice the total amount of impaired loans. It also held airplanes as collateral. EDC invested the rest of its assets in lower-risk financial instruments such as government bonds to secure liquidity.
EDC's equity capital ratio (shareholder's equity/total assets) fell in 2008 on a sharp rise in assets, but still remained high at 17.3% at the end of the year. The government's C$350 million of capital investment in January 2009 is estimated to have pushed up the ratio by around one percentage point. Even measured by its stricter capital adequacy norms introduced in 2006, EDC continues to have sufficient capital to bear potential risks.
EDC's total insurance exposure at the end of 2008 was up 37% on year. While net insurance claims increased nearly 80% in the year, EDC had ample allowances and tried to minimize risks by utilizing reinsurances.
EDC has been managing risks in a conservative manner in accordance with its strict provision criteria on country/industry overlays and credit risks. Its risk management policy has functioned well so far even in the current difficult economic environment, as its default rate remains much lower than the market average. Moreover, EDC manages its operations with prudence in keeping with the provisions of the Export Development Act. It met both the borrowing limit (15 times its equity capital) and the contingent liability limit (increased to C$45 billion from C$30 billion in January 2009) as of the end of 2008.

4. Ample net income to ensure solid financial position
Although EDC is not a profit-oriented institution, years of uninterrupted positive net income have contributed to strengthening its financial structure. Despite the harsh economic environment, it posted C$206 million in net income in 2008. While net income before provisions and insurance claims-related expenses was marginally smaller than a year before, net income more than halved on increased loan-loss provisions and insurance claims. In 2008, EDC paid out C$250 million in dividend to the government.

<Profile of EDC>
EDC, created in 1944 to function as Canada's official export credit agency, was transformed into a wholly government-owned Crown Corporation in 1969 under the Export Development Act. EDC's financial management, reporting and auditing are governed by the Financial Administration Act. As a financial institution to implement the government's international trade policy, its mandate is to promote the development of Canadian exports and investment. It is engaged mainly in providing export insurances, loans and guarantees. EDC raises all its financial resources by itself and conducts its operations on a commercial basis.