Ontario judge to uphold Red Lobster's U.S. bankruptcy case in Canada

The Canadian Press

Red Lobster restaurant signage is seen in Schaumburg, Ill., Monday, May 20, 2024. A lawyer for Red Lobster Canada, Inc. says he will ask an Ontario court today to recognize and enforce the chain’s U.S. bankruptcy protection proceedings, a process which documents show could include selling Canadian assets. THE CANADIAN PRESS/AP/Nam Y. Huh

An Ontario judge issued an order Tuesday that recognizes and enforces Red Lobster’s U.S. bankruptcy protection proceedings in Canada. 

The order from judge Michael Penny was requested by lawyers for the beleaguered seafood restaurant chain's Canadian business, who told a virtual court their client is working to steady its operations. 

"Everything we are trying to do today is to stabilize the business," said Linc Rogers, a lawyer representing Red Lobster Canada, Inc.

The future of the chain, best known for its expansive seafood offerings, Cheddar Bay biscuits and family-friendly atmosphere, was thrown into question earlier this month, when its Florida-based parent company filed for Chapter 11 bankruptcy in the U.S. and shuttered dozens of restaurants. 

Penny granted Red Lobster Canada a stay which prevents creditors from taking action against it, last week. His Tuesday order to recognize the U.S. proceedings will hand the company more breathing room as the case south of the border winds through court and the chain contemplates its future.

That future could involve selling off some or all of the company's Canadian assets, a May 20 affidavit from the chief executive of Red Lobster Management LLC shows.

"With a looming liquidity crisis and no meaningful ability to raise fresh capital, the RL Group’s board of directors ... determined that a value-maximizing sale would be the best possible alternative," the filing from Jonathan Tibus says.

Red Lobster, which expanded to Canada in 1983, has 2,000 Canadian employees, who are mostly part-time and non-unionized. The chain has 27 locations across Ontario, Alberta, Manitoba and Saskatchewan. 

The company leases most of its properties in the country and owns two in Ontario, including a Brantford restaurant site and an Etobicoke location on The Queensway, where it owns a building but not the land.

Stuart Brotman, a lawyer representing information officer FTI Consulting, told the court Tuesday that Red Lobster Canada "has been and is expected to continue to be cash flow positive," however, Tibus said in his affidavit that the overall company has faced "significant challenges."

Those challenges include "disruptions to its supply chain, hyperinflation affecting food, labour and delivery costs, substantial increases in the cost of capital and real property leases, and shifts in casual dining trends both during and after the COVID-19 pandemic."

Another filing from the company shows its annual customer count dropped by 30 per cent since 2019 and has only "marginally improved from pandemic levels."

Even its “Ultimate Endless Shrimp” promotion, which was at one-time made a permanent offering, hampered the company's financial performance. 

Tibus labelled it a "significant cash drain" that filings say cost Red Lobster US$11 million.

The company is now investigating whether its former chief executive Paul Kenny and Thai Union, a seafood conglomerate with a stake in Red Lobster, encouraged marketing of the promotion that was so "excessive" it triggered "major shortages of shrimp with restaurants often going days or weeks without" the seafood.

Thai Union said it has been a supplier to Red Lobster for more than 30 years and it intends for the relationship to continue.

"We are aware of the meritless allegations in the bankruptcy court pleadings and look forward to a full representation of the facts," Thai Union said in a statement.

By June 2023, Tibus said the company had begun working on a plan to reduce spending and waste while restoring growth to the company. Court documents show the plan was meant to "simplify" the menu and "implement a sensible promotional calendar with fewer limited-time offers."

However, Tibus said the brand is still facing "significant liquidity and operational challenges, which were exacerbated and accelerated by significant over-market and underperforming leases and poor operational and marketing decisions by prior management."

Red Lobster did not respond to a request for comment on the filing or the future of its Canadian assets.

The chain was founded in the U.S. in 1968 but has since amassed 551 U.S. restaurants and several in Mexico, Ecuador, Japan, and Thailand.

Its court records say it counts more than 64 million customers per year and is responsible for 20 per cent of all North American lobster tails and 16 per cent of all rock lobsters sold worldwide.

It began as a privately owned company but was bought by food manufacturer General Mills, which eventually spun off its restaurant division as a publicly traded company.

General Mills sold the brand in 2014 to Golden Gate Capital and in 2016, Thai Union Group bought a stake in the chain but is reportedly divesting from Red Lobster.

This report by The Canadian Press was first published May 28, 2024.

 

Weight-loss drugs are coming to bite a sugar industry in denial

Ilena Peng and Dayanne Sousa, Bloomberg News

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In a room filled with more than 800 sugar traders, Sally Lyons Wyatt, an executive at consumer researcher Circana, had an important message to deliver: Ozempic is coming for your industry.

“Does it have the ability to be huge in the future?” she asked during her speech at the New York Sugar Dinner earlier this month. “It does.”

Nobody appeared to be paying attention. As is traditional at the event, traders were preoccupied with the clock, having placed bets on how long the speech would last.

The oversight extended beyond the dinner. Traders, brokers and analysts met at conferences, individual presentations and meetings throughout New York Sugar Week, an annual event that gathers traders from across the world. They swapped outlooks on how much sugar would be available in the upcoming season, discussed the role of biofuels, and even argued about rules on the New York exchange.

Demand was a footnote. That’s even as executives from Walmart Inc. warned that Novo Nordisk A/S’s Ozempic and Eli Lilly & Co.’s Zepbound are impacting food sales, and multiple analyst surveys have showed that less-hungry customers are spending fewer dollars at grocery stores and restaurants. 

Sugar traders, used to seeing demand grow as population expands, could be overlooking the next big demand hit. The drugs, which cut cravings, will result in a decline in calorie consumption in the U.S. of 1.5 to 2.5 per cent by 2035, with a drop of as much as five per cent in the consumption of sweets such as baked goods, confectionery and soda, Morgan Stanley analysts including Pamela Kaufman said in a report last month.

Expanding market

Morgan Stanley forecast about a 10th of the U.S. population will be on the so-called GLP-1 medications — originally designed to treat diabetes but being used by many as a powerful weight-loss tool — by 2035.

“I’m spending a lot of time thinking about it because I think it could be really important,” said Stephen Geldart, the head of analysis at London-based commodities trader Czarnikow Group Ltd. “Maybe I’m wrong, but if no one else is paying any attention, that’s great. I’m quite happy to do things that no one else is looking at.”

Even with tight supplies and sky-high prices limiting uptake of the medications, sales of GLP-1 drugs for both obesity and diabetes already exceeded US$19 billion in 2023. The global obesity market alone could top $100 billion by the end of the decade, Goldman Sachs Group Inc. estimates, while Bloomberg Intelligence forecasts $80 billion of sales.

More than 60 per cent of U.S. consumers taking the drugs said they had cut back on sweet treats like candy, ice cream and baked goods, and many said they had either significantly — or entirely — stopped eating those products, according to Morgan Stanley.

Not everyone in the sugar market is worried about weight-loss drugs. In New York, Carlos Murilo Barros de Mello, the head of sugar in the Americas at brokerage Hedgepoint Global Markets, said the industry hasn’t spent significant time estimating consumption because shifts are “minuscule” relative to production swings.

The impact hasn’t been felt yet as “it’s still very much further down the line,” said Kona Haque, head of research at ED&F Man. “And don’t forget, this is still very much an advanced-economy, affluent-society syndrome where people are trying to tackle obesity.”

Haque stressed that sugar demand is still growing in emerging markets, where the medications aren’t yet being marketed. And even in places like the U.S., there is still a strong need for sugar as many customers prefer it over alternatives like high-fructose corn syrup, said Plinio Nastari, founder of Brazilian consultants Datagro.

Global picture

“I suspect it’s not a big enough factor to be concerned about the bigger global picture,” said Tom McNeill, managing director at consultancy Green Pool Commodity Specialists. 

Demand growth has long been buoyed by increasing populations and rising incomes in regions like Asia and Africa. Sugar also still accounts for 80 per cent of global sweetener use, holding up against competition from substitutes like high fructose corn syrup, according to the Organization for Economic Co-operation and Development. 

Still, demand has taken a hit over the past decade as health conscious consumers cut back. Global consumption is growing at just 1.2 per cent a year now, compared to the 10-year average of 1.6 per cent, according to the International Sugar Organization.

Global per capita sugar consumption in 2022 was just 22.1 kilograms, recovering slightly from a pandemic low but still 3.5 per cent below 2016 levels. European consumption took a similar 3.3 per cent dip from 2016 to 2022, while in the U.S., Mexico and Canada trade zone it dropped 6.1 per cent, ISO data showed.

As the use of GLP-1 drugs spreads, cheaper versions are also popping up. Once patents on branded drugs expire, so-called generics sold at lower costs could also boost the overall uptake.

In Brazil, local pharmaceutical company Biomm SA is already looking to supply a generic version of Ozempic once Novo Nordisk’s patent expires, which could happen as soon as 2026. Sales of that drug already represent a $600 million market in Brazil, according to investment firm Ace Capital, and as many as 7 million people could become users once lower-cost options hit drugstores.

A country like the U.K., for example, which consumes about two million metric tons of sugar a year, could see losses of “tens of thousands of tons,” Czarnikow’s Geldart said. “That sort of stuff at the margins, it makes a difference.”

Food diversification

GLP-1 drugs have already moved stock prices, with the S&P Consumer Staples Index falling last October after Walmart said consumers were buying less food. Analysts at Truist Securities downgraded shares for Krispy Kreme Inc. on uncertainty over the medications’ impact. Nestlé SA is even launching a new line of frozen foods specifically targeting users of GLP-1 drugs.

Back at the sugar dinner, Circana’s Lyons Wyatt encouraged companies to understand what GLP-1 users are “craving” and diversify product offerings, including with smaller serving sizes. But with nobody listening, even the executive joined in on the joke.

“I accept bribes,” she said, referring to how long her speech would last.

WORKERS CAPITAL

Omers said to explore selling stake in Texas renewable energy Firm

Gillian Tan and Paula Sambo, Bloomberg News

Ontario’s pension fund for local-government workers is exploring selling a stake in Leeward Renewable Energy, according to people with knowledge of the matter.

, Bloomberg

(Bloomberg) -- Ontario’s pension fund for local-government workers is exploring selling a stake in Leeward Renewable Energy, according to people with knowledge of the matter.

The Ontario Municipal Employees Retirement System is working with advisers to solicit interest in the Dallas-based company, which may be valued at about $3.5 billion including debt in a transaction, said the people, who requested anonymity discussing confidential information.

Representatives for the Canadian pension fund declined to comment. Leeward didn’t immediately respond to a request for comment. 

The company, led by CEO Jason Allen, operates and owns a portfolio of 31 solar, wind and energy storage facilities across the U.S., its website shows, and is developing dozens of new ones. Leeward says it expects to commercialize more than 1,000 megawatts of renewable energy capacity over the next couple of years. 

The infrastructure arm of Omers acquired the business from ArcLight Capital Partners in 2018, and Leeward expanded in 2021 by buying a solar project platform from First Solar Inc. 

 

Can AI-driven efficiencies address Canada's lagging economic productivity?

Daniel Johnson , BNN Bloomberg

A new report from TD Economics says that while advancements in AI technology could help the Canadian economy address long-standing productivity issues, its potential for growth will depend on its implementation. 

TD Senior Economist Rannella Billy-Ochieng’ and Economic Analyst Anusha Arif said in a report Tuesday that AI offers a potential “remedy” to Canada’s productivity issues. The report said that weak investment has contributed to productivity issues, but a larger issue has been the “slowing rate of technological change.” 

“Canada’s unique AI ecosystem provides a good starting position for us to ride this industrial growth wave, but poor adoption policies and weak AI preparedness may derail this opportunity,” the report said. 

“In the more optimistic scenario, the adoption of AI across industries could lead to an output increase of five to eight per cent over the baseline over the next decade.” 

Recent advances in AI technology are now “manifesting with great speed,” the report said, and some experts predict AI to be a key technology “of the next Industrial Revolution.” 

“Generative AI – a general purpose technology with the ability to mimic cognitive skills – has the potential to be one of the most influential innovations of the fourth Industrial Revolution,” the report said. 

“These technologies will change the way we work, and by helping workers become more efficient, will foster greater economic growth.” 

Despite the potential productivity gains from AI implementation, the report highlighted that Canada has a globally competitive AI ecosystem. However Canadian businesses have comparatively poorer AI adoption rates relative to U.S. peers.

“The absence of widespread adoption and commercialization of AI among businesses could stand in the way of Canada fully capitalizing on this nascent opportunity,” the report said. 

The report detailed that Canada’s total factory productivity, which measures changes in economic output that don’t come from increased inputs, began slowing in the 1960s.  

According to the report, total factory productivity has weighed on labour productivity for the past two decades.

TD’s report follows widespread concerns about the nation's lagging economic productivity. In March, Bank of Canada Senior Deputy Governor Carolyn Rogers described the issue as an economic emergency. 

Last month Mark Wiseman, the former Canada Pension Plan Investment Board (CPPIB) CEO, said that while the federal government’s 2024 budget focuses on redistribution, more attention should be given to productivity-related issues. 

More Canadians only making minimum payment on credit cards: TransUnion

Ritika Dubey, The Canadian Press

A new report suggests an increasing number of Canadians are seeing their credit card balances balloon as the cost-of-living crisis and higher interest rates eat into household budgets.

A TransUnion report published Tuesday said the number of Canadians paying only the minimum monthly amount on their credit card rose eight basis points to 1.3 per cent in the first quarter compared with last year. 

Matthew Fabian, director of financial services research at TransUnion Canada, said many household incomes are not keeping up with inflation and higher interest rates, leaving them to rely on credit. 

"Consumers that have had significant increases in their mortgage payment have made that deliberate trade-off to pay less on their credit card and in some cases, they're missing their payment," Fabian said in an interview. 

"We've seen a higher delinquency rate in credit cards for those consumers that have mortgages than traditional credit card consumers."

Total consumer debt in Canada was $2.38 trillion in the first quarter, compared with $2.32 trillion in the same quarter last year, and down only slightly from a record $2.4 trillion in the fourth quarter.

The report said 31.8 million Canadians had one or more credit products in the first quarter, up 3.75 per cent year-over-year. The jump was mainly driven by newcomers and gen Z signing up for their first credit products. 

The report showed there was a 30 per cent surge in outstanding credit card balances for the gen Z cohort compared with the previous year.

"The younger generation (is) only getting access to credit for the very first time in their life," said Fabian. "They're still learning how to use it, they're still learning what it means to pay your monthly obligations."

Meanwhile, millennials held the largest portion of debt in the country — about 38 per cent of all debt — likely due to higher credit needs as they grow older, according to the report.

"They're in the life stage where they're probably having children, getting houses and have auto loans," Fabian said. "The structure of the debt is shifted where 10 years ago, the majority of them would have had credit cards and car loans."

Fabian said he isn't overly concerned about households falling behind on their mortgage payments because of the strict screening process established by the banking watchdog to qualify for a mortgage.

He also said cash-strapped consumers will typically pay their mortgage first at the expense of other credit products like their auto loan or credit card. 

Even though there are concerns about missed payments among the vulnerable population, Fabian said, "We're still seeing pretty decent resiliency in the Canadian consumer base, especially when you look at how quickly it's grown with gen Z and the volume of credit participation."

He added interest rate cuts, which are anticipated as early as June, can lessen the burden on households over time.

"Our expectation is that the market will start to correct back to normal," Fabian said.

This report by The Canadian Press was first published May 28, 2024.

AB BIG OIL

Lobby group says emissions cap would cost oil and gas sector $75B in lost investment

Amanda Stephenson, The Canadian Press

A new report commissioned by an industry lobby group on the federal government's proposed emissions cap stirred up strong reactions from both oil and gas supporters and environmental groups on Monday.

The report, by S&P Global Commodity Insights, was commissioned by the Canadian Association of Petroleum Producers to examine the impact of various proposed emissions-reducing policies on Canada's conventional (non-oilsands) oil and gas producers.

Its conclusions Monday were used to support the industry argument that legislating an emissions ceiling will inhibit investment and growth, even as opponents argued the report's methodology was flawed.

The commissioned report concludes that if oil and gas drillers were required to cut greenhouse gas emissions by 40 per cent by 2030, industry could see $75 billion less in capital investment over the course of the next nine years compared with current policy conditions.

The study says that would translate to one million barrels of oil equivalent less of production per day by 2030 compared with current forecasts, and 51,000 fewer jobs by 2030 than under existing government policies.

The findings align with what Canada's oil and gas sector has long been saying — that the federal government's proposed cap on emissions from the industry will amount to a de facto cap on fossil fuel production.

On Monday, CAPP president Lisa Baiton said the new report is proof that a federally mandated emissions cap "should not proceed."

"Declines in production forced on the industry by a stringent emissions cap will result in significant job losses for Canadians, severe impacts on the economy and our GDP, and have the potential to compromise Canada’s energy security and prosperity," Baiton said.

But the federal government has said all along that the oil and gas emission cap will be designed to limit emissions, not oil and gas production.

The government has said the design of the emissions cap will take into account other regulations, such as Canada's commitment to reduce oil and gas methane emissions by at least 75 per cent by 2030, as well as complementary climate policies by federal and provincial governments.

And the hypothetical scenarios the CAPP-commissioned report examines do not use the same targets the federal government actually proposes in its draft emissions framework, released last December.

Under the proposed framework, the sector would have to cut greenhouse gas emissions by 35 to 38 per cent from 2019 levels by 2030. The sector would also have the option to buy offset credits or contribute to a decarbonization fund that would lower that requirement to cutting just 20 to 23 per cent.

“CAPP has commissioned an analysis of a non-existent scenario. Everything in it flows from false assumptions that make it so deeply flawed, it amounts to disinformation," said Oliver Anderson, spokesman for Environment Minister Steven Guilbeault, in an email.

CAPP says its sponsored study adds in the projected impact of the federal government's draft methane regulations, which would require at least a 75 per cent reduction of oil and gas methane emissions below 2012 levels by 2030, and takes into account that the policies have not been finalized and remain uncertain.

Environmental groups were quick to criticize the report's methodology. Clean energy think-tank The Pembina Institute said the CAPP report includes only conventional oil and gas drillers and leaves out oilsands production, which accounts for the vast majority of the industry's emissions profile.

The Pembina Institute added that when it comes to methane, which is where the bulk of conventional drillers' emissions come from, significant reductions can be made using already existing, cost-effective technologies.

"Pembina Institute research demonstrates that the proposed 2030 emissions cap can be feasibly met by the oil and gas industry, almost entirely through a combination of methane reductions (which would mostly come from the conventional sector) and the Pathways Alliance’s 2030 emissions reduction plan (for the oilsands)," the think-tank stated in a release.

While the oil and gas sector is Canada's heaviest-emitting industry, the bulk of those emissions come from the oilsands sector — where rising production is contributing to increased to total emissions.

Emissions from the conventional sector, which the CAPP reports focuses on, have been declining since 2014.

Alberta Premier Danielle Smith also waded in Monday, issuing a joint statement with the province's environment and energy ministers in which she referred to the proposed cap as a "reckless gamble that will devastate Canadian families and do nothing to reduce global emissions."

This report by The Canadian Press was first published May 27, 2024.

 

Residential mortgage debt hits $2.16 trillion amid slowest growth in 23 years: CMHC

The Canadian Press

Canada Mortgage and Housing Corp. says the country’s total residential mortgage debt totalled $2.16 trillion as of February this year, up 3.4 per cent year-over-year and representing the slowest growth in 23 years.

The federal housing agency said in a new report that higher mortgage costs and uncertainty around the Bank of Canada lowering its key interest rate led to softer home sales and prices across many regions in the second half of 2023.

However, it said the slowdown in mortgage growth could be short-lived. 

The agency expects the rate of growth for mortgage debt to increase amid forecasts of higher home sales and prices in the coming years.

It said an anticipated decline in mortgage rates, along with population growth and increases in real disposable incomes, will likely fuel the turnaround.

"In a context where debt levels have never been so elevated and households are showing increasing warning signs of financial struggle, household debt vulnerability is becoming a primary area of concern," said CMHC deputy chief economist Tania Bourassa-Ochoa in a press release. 

"As homeowners find it more difficult to manage their monthly budgets, policymakers and the financial sector are on high alert when considering risks to the financial industry and the economy."

The report also said borrowers are continuing to opt for shorter-term, fixed-rate mortgages over traditional five-year fixed terms as they remain uncertain of the short- and medium-term mortgage rate outlook.

That's despite "noteworthy increases" in the discounts being offered by lenders on five-year, fixed-rate mortgages in the first two months of this year, which marked a reversal of the trend from the last half of 2023.

"Lenders are foreseeing potential rate cuts by the (Bank of Canada) occurring sooner than they anticipated last year and are seeking to lock in mortgages at relatively high rates," the report said.

Terms ranging from three years to less than five years remained the most popular choice, representing nearly 40 per cent of all lending for newly extended mortgages in February 2024. Variable-rate mortgages accounted for 15 per cent of all lending for newly extended mortgages.

The report showed the national mortgage delinquency rate hit 0.17 per cent in the fourth quarter of last year, still near historic lows, but trending up for the first time since the beginning of the pandemic.

It also highlighted the Big Six banks taking an increasing share of the market for extended mortgages.

In the fourth quarter of 2023, those banks' share grew 11.8 percentage points from last year, driven by increases in refinances and renewals. Other chartered banks and credit unions recorded decreases of 6.9 and 3.1 percentage points, respectively. 

This report by The Canadian Press was first published May 29, 2024.