October 23, 2024 • 46 mins
Join Co-Chairs Mark Magnacca and Robert Brant as they interview Steve Berna, COO of the First Nations Finance Authority (FNFA). Steve discusses FNFA's significant role in funding Indigenous projects including $1.4 billion investment in Cedar LNG and their ongoing efforts to create more opportunities for First Nations. Discover how FNFA is driving economic growth through innovative financing solutions and empowering communities to undertake transformative ventures, all while ensuring sustainable development for future generations. Tune in to learn about the impact of FNFA’s initiatives and the vision for expanding their reach in Indigenous investment.
Mark as Played
Transcript
Episode Transcript
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(00:00):
Steve, it's great to have you here, the FNFA and the FNF.
(00:13):
MB are at the forefront of a new wave of Indigenous institutional investing.
And I think it's really changing how funding is coming to Indigenous communities and what
they can achieve with the funding they're making available.
Would you talk to our listeners a bit about your background though, about where you grew
(00:34):
up and went to school and how did you end up where you are today?
Thank you, Mark.
So, I'm not Indigenous.
My background is I have parents who, father who grew up in Cape Breton, mom who grew up
in Fredericton, New Brunswick.
But after law school, my father got a job in a town called Camelops in British Columbia.
(00:59):
And neither of you have probably ever been to Camelops, but there's a river that runs
through the town.
So, there's a north side of Camelops and a south side of Camelops.
And I would go to school and there were, you know, you make friends and friends come and
go.
But there was a consistent side of North Camelops where First Nations children, Camelops
(01:22):
Indian Band at that time, you know, you'd make friends from grade one to grade eight.
And in grade nine, you wouldn't see them anymore.
And at that time, there wasn't a lot of press or media coverage on First Nations or Indian
bands within Canada as a whole.
And it wasn't until years later that you started realizing what a reserve was in Canada, what
(01:46):
was residential school history like.
So, I started piecing together my past and the missing friends only in my 30s.
And at that time, and it probably wasn't that much different from a lot of Canadians, but
it created questions in your head.
And those questions in your head were only fulfilled after I transferred from one job
(02:08):
to FNFA and started learning more.
But it was tied to my background and tied to friendships that seemed to come and go regularly,
but for reasons I didn't understand.
And thank you for sharing that.
And I think you're right for many Canadians who are not Indigenous.
Past 20 years has been eye-opening for some how to have their eyes forcibly opened.
(02:32):
For others, it solves a number of questions they've had.
But now we're in a position with UNDRIP and the Char of Rights and Freedoms and Indigenous
Leaders and people such as you are helping Indigenous organizations take things that
next level, these economic opportunities are not just for the Indigenous people.
(02:53):
The spin-off benefits are all of Canada because Canada now has a chance to actually realize
its full potential because it's dealing with the baggage that was never addressed.
So in terms of, you know, coming to your leadership role at FNFA, do you want to talk a little
bit about how you ended up at FNA and a bit about your professional background?
(03:15):
Sure.
You get labeled in school pretty early on.
And you know, parents will come to teach your interviews and they'll say, your son is good
at mathematics.
You should pursue a course in mathematics.
Unfortunately, when I was growing up, there were standardized occupations you would be
(03:36):
steered towards.
There wasn't the wealth or variety of opportunities that kids have now.
And even if you went and talked with counselors, you know, they would hand you a pamphlet and
there may be five general areas that you'd look at and say, you know, you should be a
teacher of mathematics or you should be an accountant or you should do this or that.
(03:57):
But there wasn't a plethora of choices.
So coming out of university, needing a job like most people to pay the bills, the economy
was not in good shape.
But the one thing about accounting firms is they record things when times are good and
they record things when times are bad and they were hiring.
So I got into accounting at KPMG not because it was a passion or a love, but because the
(04:20):
door was open for employment.
But being at KPMG, you realize something about yourself pretty quickly.
You either recorded or sorry, you liked recording what other people did.
In other words, they were the decision makers and you recorded it or made sure it was recorded
properly or you looked in the mirror and you said, I would like to be a decision maker.
(04:41):
And it was pretty apparent to me that recording what other people did did not fulfill me.
I want to be the one that was in the front making the decisions.
Yes, no timing and doing the initiating of, you know, opportunities myself.
So after I got my CA degree and sat down with a senior partner at KPMG in Victoria, the
(05:05):
discussion was, where do you see yourself?
And you never liked to disappoint people.
But the look on his face when I said, I see myself working elsewhere, you know, it made
me realize his passion was accounting, but mine wasn't.
Luckily, there was an organization about three blocks away that was a KPMG audit client
(05:27):
called Municipal Finance Authority of BC.
And they were looking for an accountant in their finance here because they were a financial
authority for all of BC's municipalities.
And when I transitioned over, my knowledge in finance was pretty limited to what you
learn in university, present value, future value.
You didn't know anything about bonds, debentures, capital markets.
(05:49):
But when I got there, seeing what the news meant for the impact and interest rates, geopolitical
events, a currency crisis, world leaders' comments, it started making the work area
real life like.
And when you got up and you watched the news, you see how the impact would be.
(06:10):
So finance became a passion because it was more than just numbers.
It was tying in geopolitical around the world.
24 hours a day, world spins.
And that created a path for me to transition out of accounting into the finance area.
And I've never looked back.
Great.
Well, it sounds like that was a win-win for KPMG and you.
(06:31):
Your boss there was probably, he doesn't want to be an accountant.
What are we going to do with him?
They, of course, had a client who needed someone and look at you today.
So that's great.
Rob, do you want to talk a little bit about FNA?
Yes.
I'm curious, Steve, how similar your role at the BC Municipal Finance Authority is to
(06:54):
your role at FNFA.
And I know you oversaw the loan portfolio there.
You do similar things at the FNFA.
But, and we spoke to Ernie Daniels on our last podcast, talked a bit generally about
FNFA.
But maybe remind our listeners, first of all, what FNFA does.
(07:16):
So first question was, are they similar?
So the Municipal Finance Authority of BC is a financial body that goes and access financial
monies at low rates for municipalities, towns, villages, different other bodies within the
province of BC to do infrastructure projects.
And around the late 1990s, early 2000s, there was a knock on the door by certain First
(07:42):
Nation leaders asking whether they could join BC MFA.
In other words, get access to the low rate loans because their economies were trying to
develop and the infrastructure was trying to be developed.
And the answer was no.
The provincial act that created BC MFA said you must be a local government as created
under the province of British Columbia.
So it killed that.
(08:03):
But what it did do is after 17 years at BC MFA, I looked in the mirror one day and said,
sometimes you can spend your whole life at a job or you can take a chance and do another
job.
And I started wanting to take a chance to do another job.
So when I started putting my resume out there, the very people that knocked on the door for
(08:26):
trying to create or open the door for First Nations to also borrow at low rates, asked
whether I would take a risk, change jobs, and try to create FNFA.
And you can see how the names are similar, BC Municipal Finance Authority, First Nations
Finance Authority.
So it was purposely copied after the BC MFA model because it had been successful since
(08:49):
1970 and had a great reputation.
So they are very similar.
If you walked in and you saw what we did and you saw what BC MFA did, you say, wow, you
guys look totally like you parallel each other.
And that did occur for quite a while, but infrastructure is not the way First Nations
(09:10):
are going to create wealth because if you own a house, there are certain things that
come up called maintenance.
There are certain things that come up called repairs.
And there are certain times you have to hire people to be the maintenance or the custodians
of those.
So they are a cash user, not a cash creator in a lot of cases.
(09:30):
So where BC MFA and FNFA differ is municipalities that provide services to the public.
First Nations are to provide services to their membership.
And here's the key difference, Robert, is First Nations do not get a hundred cents on
the dollar to run their programs, social programs, health programs, education programs, their
(09:53):
governance of their administration.
They need to make up a certain sense on the dollar.
So where does it come from?
It comes from economic opportunities.
So the one difference you'll see between BC MFA, my old job in FNFA was the creation
of FNFA of the ability to lend to First Nations so that they can give them economic ventures.
(10:15):
Those profits then create the missing cents on the dollar for their programs or it allows
enough money to be leveraged into other opportunities.
So FNFA is an expansion of BC MFA's mandate, both infrastructure and now into economic
opportunities as well.
It sounds Steve like you were there in the very early days.
(10:39):
When did you join FNFA?
April 1st, 2008.
And you look at it, and April 1st is the start of the fiscal new year, so it made sense that
way.
But when I started, I thought this would be a slam dunk, six months, because there's
already proven track rates, it goes out there, municipalities banding together.
(11:01):
There's a proven track record of capital markets accepting a pool of local governments to
borrow, and they borrow close to the same rate as the province of Ontario.
So how could it be difficult?
Well my first eye opening moment was that even though First Nations saw themselves as
a level of government, the bureaucrats in Canada did not always see that way.
(11:24):
They would write checks to the chief and council, spend it on this program, social needs, spend
it on this program medical, spend it on this program health, spend it on governance within
your administration, and then they expect reports back.
They were programs.
So the challenge to turn the bureaucratic mindset from seeing First Nations as a program into
(11:47):
a level of government and give them the respect they needed was challenge number one.
And all of a sudden the real is six months ain't going to happen anymore.
It is not going to be a slam dunk, it's going to be a battle.
So I spent the first year from 2008 to almost the end of 2009 trying to convince the bureaucracy
that First Nations should be respected as a level of government and failed.
(12:09):
So if you fail, you can either turn around and run away, or you can take a different
approach.
Then I took a different approach and I said, if you can't convince the bureaucracy, then
get somebody else to convince the bureaucracy.
So in 2009 and 2010, I started going out to the credit rating agencies, Moody, Standard
and Poor's.
(12:30):
I started going out to the investors, the life insurance companies, provincial pension
plans, capital markets, players that lend monies to other levels of government and said,
if I can get a credit rating that allows access to the capital markets, will you deem First
Nations to be a level of government?
And they all said yes.
And they wrote letters of support for that.
(12:53):
So once I had that, I thought, okay, how do we leverage these letters of support into
turning the bureaucratic tide in favor of respecting them as a nation and as a level
of government?
Luckily, there was a gentleman MP in the Chilliwack area, Chuck Strahl, who said, I will stand
up in the House of Commons and I will support the creation of a second act that focuses
(13:18):
on First Nations being able to leverage their own source revenues into the capital markets
as a level of government and I will put my hand up and put a motion forward.
And it passed.
Conservative government at that time in Canada.
So with that one MP support, we were able to create a second act under which we now
(13:38):
manage our operations and it also created the path for rating agency.
We will give you the credit rating to access the market.
The investor says, we're sitting there waiting to lend you the monies as First Nations requested
and the bureaucracy said we've got orders from the political side to now treat them
as a level of government and the path was created.
(14:01):
Fantastic, well thought.
Yeah, no, it's a great story but it still was a little bit longer before you could raise
your first debenture and so there must have been more trials.
It was not six months but maybe six years from the time you joined to get that first
financing.
Yeah, so the second act came into force in November of 2011 and that's the time you just
(14:25):
interviewed Ernie Daniels, our CEO and president.
That time Ernie was hired when our second act was created because even though I could
create the road of which First Nations go down to go access low rate loans and to give
you an example today, chartered bank prime in Canada is 6.45%, almost 6.5.
(14:49):
Our lending rate is 3.95, 2.5% below bank prime.
So you can see if you were simply doing it on mathematics you'd say absolutely I'm going
down that path, why would I not because every return on investment is going to be that much
higher but what I didn't understand was the history of First Nations and how they were
(15:10):
used to knocking on Canada's door to try to access funding every year, how they were
completely overloaded with the reports that they had to complete on the program monies
they received and an education was needed for them to understand what the capital markets
were, what is the debenture, etc.
(15:31):
So I did not have the trust or even the knowledge of what First Nations, how they operated and
they didn't have the knowledge or trust of how I operated.
So Ernie and I symbiotically complimented each other very well because if you listen
to his podcast you'll find out his history is in different areas of First Nations departments
(15:55):
not departments but organizations that have created a good comfort level with his name
and what he's done over the period of time.
So when we would go present together to First Nations communities I could tell them about
what the economic opportunity or mathematical advantage was to joining FNFA.
(16:16):
He could then tell them about the comfort level of why they should take a risk of joining
with us and taking a new path.
So it wasn't just creating the path but it was also creating their understanding, their
trust and their comfort that they would take a risk of going with us.
And in 2012, June of 2012 our first loan went out the door but it took two years to get
(16:40):
our second and third and fourth and enough loans out the door that they accumulated to
a large enough amount that in June of 2014 we could turn those short-term loans into
a debenture.
So it took a while but trust and comfort of the communities was the key pivot that allowed
us to succeed.
And it seems to have snowballed from there 10 years after that first debenture.
(17:05):
Ten is it?
The debentures have been issued more than $2 billion raised.
Maybe just some highlights for the past year would be helpful.
What sorts of investments have you made?
Yeah, I know Ernie talked about what reconciliation means now.
You know you have Canada and certain provinces have passed undripped, United Nations Declaration
on the Rights of Indigenous People.
(17:27):
That's a piece of paper and it allows you to shake hands, take pictures and everybody
feels good about themselves but it doesn't create those missing dollars under your budget
as a First Nation community to operate your programs.
You need more than just a handshake and a photo opportunity.
So when economic reconciliation started transitioning both in the public eye and the government
(17:48):
eye at the federal and provincial level into economic reconciliation, we finally had opportunities
to start looking at not just funding infrastructure, which is needed to make communities healthy
but it doesn't always allow growth and it doesn't allow profits to come in.
So 2021 was the first time that FNFA, we took a risk.
(18:10):
Ernie and I sat down and we were knocked on the door by seven MiCMaw communities in the
Atlantic Canada.
They wanted to be 50% owners of seafood, our Clearwater Seafoods.
Never happened before.
Two things, we've never had a group of First Nations wanting to work together on an economic
venture and we'd never lent 250 million a large size for us at that time in 2021 to
(18:35):
take a risk that wasn't infrastructure but it was business related.
And that led into hiring outside legal councils, doing due diligence on the financial economic
side, taking a look at the capital markets reports on whether Clearwater Seafoods was
a well-run company.
What was the capacity for the market to absorb the certain amount of seafood or harvest that
(18:57):
the company had?
But in January of 2021, after lengthy discussions with those seven communities and our board
of directors, we put our thumbs up and said, let's fund this opportunity.
That transitioned us into knocking on investors' doors and said, we're raising money for infrastructure.
Here's a picture of a building.
Here's a picture of a water system.
(19:18):
Here's a picture of housing.
Into a picture of business.
And it allowed something else to come out, Mark and Robert, because for the first time
we started realizing we need to do communications on what we do.
It's no longer a picture.
We need to do testimonials of what the impact of these economic ventures are to the communities.
(19:38):
What is a human story?
What did chief and council do with the profits that Canada had not fulfilled under their
obligation for infrastructure creation?
Sometimes we would do videos.
And by doing that, when we sat down with investors in Canada, US, Europe, Asia, all of a sudden
it wasn't so much the dollar size that mattered anymore.
(20:00):
250 million, that's fine.
Now we're doing 500 million.
This year we're going to do 1.2 billion in 2024.
It became the story because as we were transitioning from infrastructure to economic reconciliation
ventures, investors out there were transitioning to social investing.
What is our money doing when we lend it?
(20:22):
Is it causing harm or is it causing good?
And so when we would sit down, near me and I with the investors and show them the videos
and show them the human side of the story, all of a sudden you start to see our ability
to raise the money needed by our membership grew substantially.
Our largest client, as you know, is a 50.1% owner of Cedar LNG.
(20:47):
1.4 billion dollars are board approved for that project.
So we were fortunate that as we were changing, the people that invested in us were changing
also.
And so going forward, you're going to see economic ventures increase in size.
You're going to see first nations that can't do economic ventures individually will partner
with others, but the good thing about that, that means that nobody is left behind.
(21:12):
And no matter what size first nation you are, what your capacity is internally, you're going
to have opportunities to have profits to come in and make those community priorities a reality
which they weren't 10 years ago.
That's great.
You mentioned nations of different sizes.
Ernie told us almost 170 borrowing members the moment and so first nations of different
(21:36):
shapes and sizes.
I take it it's not just then wealthy first nations that are able to take advantage of
some of the funding that FNFA can provide.
No, if we could only fund wealthy, creating the half communities economically and the
half not communities economically.
So the model that was created that I spent three and a half years trying to get the legislation
(21:57):
through didn't differentiate between size or capacity.
And just like you would drive through the province from which we situated, we're on
West Bank first nation lands our office, but the province of BC has communities that have
300 people and they have greater Vancouver that has 3 million people.
But each one of them have needs and first nations you can have community that's 210
(22:21):
members and you can have some that have 13,000 members, but they all have needs.
So the model that was created didn't differentiate between size or needs.
What it did say was for every first nation that joins FNFA and we'll go back through
the numbers.
There are 634 first nations across Canada, 367 have put up their hands voluntarily and
(22:44):
said they'd like to be added to the act.
So over almost 60% in Canada, 190 of those 367 have completed the full process for FNFA
membership.
So we're at about one third of the communities in Canada.
Our first dimension 2014 we had 13 members.
So we've gone from 13 up substantially and it will continue to grow.
(23:07):
But when we created the model, it's just like you can go and show the bank what you have
as a salary and they will do two things.
They will give you a credit card with a certain limit based upon your ability to pay and they
will give you a mortgage or a line of credit up to a certain limit based upon your ability
to pay.
So our model goes upon what can a community afford to pay so we're not doing harm.
(23:33):
What revenue streams do they have that can support that loan and make sure when we lend
we're not causing those revenue streams to go from a surplus situation under audited
statements to a deficit situation.
And it doesn't matter whether your capacity to borrow is a million dollars or 500 million
dollars.
I say 500 because our largest client right now has 500 million outstanding by themselves.
(23:56):
So it's meant to allow communities to grow at their own pace in a safe way at their own
timing but not in a way that's going to overload them with debt that will harm their bottom
line.
Can you talk a little bit about you mentioned some of the social investors in ESG.
Do you have those types of funds or sustainability funds invested or lending to you buying?
(24:21):
The debentures.
Does every investment you make have to pass sustainability test and maybe are there any
sectors that you just won't invest in because of some of that criteria?
Robert, great question.
You know, well seven years ago when ESG and social investing came along I had no idea
(24:42):
whether it was going to be a flavor of the day or whether it was going to persist and
grow.
In some parts of the world it's more formalized than it is within Canada.
Europe for example is very formulaic which could be a good thing.
In Canada it's more individual by investor.
What are their policies?
What's their checklist?
What do they look for?
When I started putting together the ESG the first step was to gather information from
(25:06):
our First Nation members on what projects they were having come up because we're already
funded the ones they had but what was coming up.
And then once we had that, we had a Bernie and I created a board retreat.
We have 11 board members from BC all the way to the east coast of Canada in Nova Scotia
and we started talking about how there was a changing landscape of what investors were
(25:27):
looking for because we compete with monies.
We compete with the cities.
We compete with the provinces and if we can't compete then the investors are going to fund
them but not us.
And the Chairman of FNFA put up his hand and said, Steve, and his name is Warren Tobogganong
from Wasauksing First Nation in Ontario.
He said, did you know that most First Nations have a constitution or a land code that identifies
(25:54):
that Chief and Council can't borrow if it's going to cause harm to the air, land or water?
And I'd been here for over 10 years and I had no idea.
I probably had never looked at a constitution or a land code but when we started going through
it and then we found that the Deputy Chair said, well, we have one too but we call it
(26:15):
a land code, not a constitution.
It started to show that ingrained in First Nations Chiefs and Councils communities and
limitations on what they can ask for is the very ESG components that investors were looking
for.
It just wasn't formalized.
It was formalized at their community level but cities of Ottawa, capital of Canada may
(26:37):
have a policy that they want to do a green bond but I don't think they have something
that formulates it in a constitution like our membership.
So we have not today gone and got a third party opinion on what our lending practices
are, whether it meets ESG or sustainable or social bond qualities but what we do do is
(26:58):
make transparent to each investor the access to the constitution or land code of the communities
that are boring.
We show the projects that they're boring for, the impact on the community, job creation
and basically how it's going to transition that community from point A to point B.
And then we let each investor decide whether it meets their checklist or not.
(27:21):
We do do something different with Bloomberg though.
When Bloomberg puts our debenture issuance information up on their screen, they go through
a checklist with us through every loan that we make for that particular debenture and
today we've been successful to get the sustainability tag.
So no formalization of a third party opinion but we do go through the Bloomberg process
(27:42):
to make sure it's deemed sustainable on their informational site.
Wow, that speaks volumes.
Yeah, it's a unique setup but perhaps in some way it keeps FNFA from shifting because we
are not in charge of changing land codes or constitutions at the community level.
It's ingrained for them so that limits us into certain areas.
(28:06):
So what can we not do?
Well we won't get into certain areas, I'd be very surprised, we're going into areas
of gun manufacturing, cigarette manufacturing.
Those areas that are deemed to be offside, there's always going to be investors that
will buy it but because we borrow as a group, we have to make sure that letting anyone loan
(28:28):
in does not harm the group itself.
And does that go for the pooled revenues as well that are in the pool?
Are there restrictions on what types of revenues will be allowed to back?
Yeah, so the revenues were a key part of getting the second act which I worked on together
because you can accept First Nations the level of government, okay that's fine, that's a
(28:49):
respect level.
But the second thing is what's safe to lend them money?
Will it come back in the form of loan service payments every six months to the investors?
So the second act said a couple of things, it said that if a First Nation is going to
join FNFA and request a loan, then FNFA is obligated to take a look into the sustainability,
(29:13):
the strength and the consistency of the revenue stream.
So we do a due diligence on that and if you see a revenue stream that fluctuates up and
down and perhaps cannot service loaned consistently every six months, you either add a second
stream to it to make it safe or that stream is not viable for loan service.
And then the act did a second thing, I put in there something that Ernie mentioned called
(29:37):
the revenue intercept model.
So keep in mind if you remember 2008 and 2009 where it was a housing crash in the US and
building an act to try to get capital market acceptance during that period of time, you
had to create comfort levels and safeguards.
So revenue intercept is First Nation if they join FNFA and they want to take out a loan
(30:02):
or request a loan, then they take a look at the revenue agreements they have and every
First Nation have revenue agreements with the province in which they reside and those
are strong consistent stable revenue streams.
But chief and council when they want to take out a loan, send to the province what's called
a redirection letter and they said province use to send that money to our bank account,
(30:24):
we're now going to take out a loan with FNFA, please redirect it to FNFA's trust account
and those trust accounts have a very simple job, they're a clearing account, pay FNFA
to loan service and two days later when all the money clears, give the balance back to
chief and council to spend on their community.
So the revenue streams are absolutely key to how we lend and if they do not meet the
(30:47):
stability, strength and consistency tests, they cannot support a loan by themselves,
maybe together with another stream.
When we got into economic reconciliation, all of a sudden we started adding the second
level of streams and that was future agreements with potential projects, you could have provincial
hydro agreements that are under our purchase agreement and those are contracts so we could
(31:12):
lend against those.
You can have transmission line agreements with the province, you can start having certain
companies whose strength of operations meet capital market tests, in other words the credit
departments of the banks would lend to them also.
So we are absolutely focused on the strength of the revenue stream because as Ernie mentioned,
(31:33):
we don't just make a loan to a community, we borrow as a group and the group is 190
First Nations within FNFA that said we all stand behind each other's loan and the last
check is our board of directors from BC to Nova Scotia have to be unanimous in accepting
a loan request so they take a look at the strength of the revenue stream, they take
(31:56):
a look at its sufficiency to cover loan service, they take a look at the project, the impact
on the community, they take a look at does the revenue stream exist as long as a loan
service term and if any one of them is uncomfortable, loans don't occur.
So to date we have had zero late payments, we've had zero losses but it's all because
(32:19):
of the process set up to make sure if you're going to borrow as a group you protect everybody
within the group so the revenue streams are absolutely key and essential focus for us
for each loan.
In your governance structure the board is made up of just representatives of the members,
correct?
There's no outsiders or even management on the board and the board reviews every single
(32:43):
loan proposal?
Absolutely.
So in order for a joint several group to mean anything which means one for all, all for
one, you have to make the decision makers request in the loan have to be able to speak
on behalf of their community.
So who speaks on behalf of the community?
Elected Chiefs and elected councillors.
So our 11 board members are either Chiefs or councillors from amongst our membership
(33:07):
and every July we have an AGM and every July the membership votes on who they would like
to represent them for the next 12 months.
So you have to be a Chief and you have to be a councillor so that it means you do speak
on behalf of your community and therefore you also speak on behalf of 190 FNFA members.
(33:28):
We cannot have anybody outside because of a problem developed.
You'd say that one board member who's not a Chief or a councillor said well I don't
have any skin in the game.
I am not a Chief, I'm not a councillor, I can't bind my community to this problem
so it doesn't impact me.
So the rating agencies made it very clear and I agree with them that if you're going
(33:49):
to borrow large sums of money then the people that should be on the board deciding whether
that loan occurs or not occurred are ones that are impacted by the decision making and
therefore it is a Chief or it is a councillor from amongst our membership.
Impressive.
Maybe Steve it would be worth talking.
We had Chief Crystal Smith on a podcast a few weeks ago.
(34:11):
She was very complimentary of your role in the FNFA's role in financing helping finance
Cedar LNG.
Could you tell us a little bit about how that transaction evolved and closed earlier this
year?
Ah, Cedar LNG is one of the reasons why transitioning out of accounting where you go home at the
(34:32):
end of the day and you talk to your family about oh I guess what I did today I audited
this and nobody listens to you into financing projects that have absolutely material beneficial
impacts on community life.
Love it.
So Cedar LNG is a prime example of how Canada's 4,000 miles long probably 6,000 from coast
(34:55):
to coast and each geographical area or province and within Canada has different opportunities
for the First Nations in that area.
So you go to the East Coast, they're business related opportunities that's why they work
as groups.
You go into Central Canada, Quebec and Ontario and they focus on electricity generation.
It could be through wind farms, it could be through solar, it could be through transmission
(35:19):
lines.
You go into the prairies and they have different opportunities there and then you get into
BC and Cedar LNG is on the West Coast of BC and a community called Heisler First Nation
who spent years working on this long before I came along so the hard work was done prior
to me getting involved in the financial side and Ernie getting involved in the financial
(35:39):
side.
But in BC a lot of projects are resource based.
Some are continuing to be opportunities for electrical power generation but LNG is what
we have in BC and sometimes in Alberta that crosses the BC lands but the key thing is
you have this massive population in Asia and this massive population is transitioning
(36:04):
very quickly from rural to urban environments for jobs, for a change of lifestyle but how
do you create electricity for them over in Asia?
A lot of it's coal based still.
Coal is not a great thing for the global environment and so transition away from coal into LNG
which may not be the ultimate place you want to get to because it is still a fossil fuel
(36:28):
but it is a lot cleaner is what the opportunity was.
When we got contacted by Heisler First Nation the first thing they threw out was it is potentially
up to $1.4 billion.
Our largest loan to that time to any one community was $350 million and so we had a factor going
(36:50):
up four times and it completely changed how we did our analysis within FNFA because we
had a board of directors that was used to certain business opportunities and infrastructure
needs but when we got into something that large and a construction term of four and
a half years it completely rewrote how we did our analysis, started looking at getting
(37:14):
lawyers that were familiar with these type of ventures.
We started working with our banking syndicate the Chartered Banks Capital, Capital Marcus
Division of the Chartered Banks to find out their reports.
We took a look at the private sector side and we piggybacked on their data profiles
or pages within the data room and the information and the forecast but what it did do is it
(37:39):
got our board comfortable after six months of discussing it and going back and get more
information, more information that we developed a process that now allows future opportunities
that come forward to be much more smooth lined and much more what you would call a transition
from where their former needs were infrastructure into large scale opportunities.
(38:03):
So our board had to transition too and you can go back and say we're a joint several
group where you protect each other within the pool and all of a sudden you're going
to have one community that's going to have a materially larger loan than anybody else
within the pool.
So two things came out of it, one FNFA transition itself which was really needed because economic
(38:24):
reconciliation we have to grow as our clients grow and change and second of all our board
has now transitioned into a business evaluation board and that means that as opportunities
come down in different parts of Canada which is why we have board members from BC on the
west coast, Donovan Scotia on the east coast, they are usually familiar with the opportunities
(38:46):
within their geographical area themselves and sometimes they're familiar with looking
at the contracts the lawyers put in front of them say we have a similar agreement, different
in size but we have a similar agreement, we see the safeguards, we see the shareholder
agreement points, we see what protects the communities etc etc and it has allowed us
(39:07):
to grow.
So going forward if economic reconciliation is a way for First Nations to get profit,
to close the funding gap on their programs, we had to transition to be ready for it and
luckily that one project pushed us into that area so we're good to go for the forward as
growth and opportunities go as well.
Fantastic, in the end I don't think you did the full 1.4 but what's your piece of that?
(39:34):
So we actually did approve the 1.4 but because it's a construction project, we have 250 million
has gone out so far, in the first 2.25 of 2025 another drawdown will happen so the money
is being drawn down, same as you would draw it online as you build your house, pay the
architect, pay the contractor etc, we are having the high-stah drawdown the money as
(39:59):
their needs to fund construction occur and under that something else transitions so if
you took a look at our debentures to date, Ernie mentioned we've done 11, they were all
tenured debentures even though our clients had the right to repay over 30 years, we
would lock in interest for 10 years and then refinance and the reason for that was our
(40:21):
debentures weren't large enough to say some of our clients have a 30-year need so we'll
do a 30-year debenture, some of them only want 10 years, we'll do 10 years, it would
have fractured our debentures into smaller sizes and investors would have said I don't
like the smaller sizes because they like liquidity which is the ability to have a large debenture
they can buy and sell and find easy. What the Heisler CDR LNG 1.4 billion is going to
(40:44):
do is contractually it says they want not to have a 10-year but they want a 30-year
debenture so that opens up our talking with investors who no longer want to fund 10 years
but they love 30 years and it could be a life insurance company, it could be a reinsurance
company, it could be a pension plan that says we invest long term because our employers,
(41:05):
some of them are going to be working here for 30 years or retire for 30 years so the
CDR LNG has not only created our opportunity to fund larger sizes but it's opened our
ability to converse with investors who didn't pay attention to us in the 10-year area but
definitely pay attention, we start talking 30 years so it has transitioned us into an
(41:26):
organisation that's growing where we weren't there a couple years ago.
You have investors from outside of Canada, we understand, can you tell a little bit more
about the international investor profile?
Yes, and that's something we're very interested in exploring speaking in front of a European
base because sometimes as I mentioned it's a storytelling that attracts the investor
(41:47):
base so we have investors and as Ernie mentioned we can't name names but we have a number of
investors in different countries in Europe based upon the social and what they perceive
under their checklist, the ESG lending that we do, we have a number of investors in Eastern
US and we've had that since 2014 but it's growing and we have investors, there's a central
(42:12):
bank in Asia and there's also another central bank in Europe so it's the storytelling that
is starting to capture the interest of these investors because it's very repetitive and
I used to do investing at BCMFA, you buy the same bonds over and over again but it doesn't
move you as an investor into that social area that you want to go.
(42:34):
As FNFA's debentures get bigger, those investors that weren't interested when we did 100 million
but now we do 500 million or 1.2 billion this year, they're saying you're up to a sufficient
size where we would like to participate because we also transition now into a social investing
area through FNFA.
So Europe is going to be a key one going forward because social ESG is a key investment criteria
(43:00):
there, sometimes in the US but not always but it's also starting to grow in Asia as
the transition from coal into LNG is starting to occur.
So as we grow our investment base throughout outside of Canada is going to be needed to
grow too so we're excited about that because we're all seem to be developing together.
Will please mark the first week of April 2025 in your calendar, the second annual Canadian
(43:25):
Indigenous Investment Summit here in London.
We would be very interested in that because I think the time is to start educating those
as our needs start growing into areas that they would perceive that they would welcome
also.
Yes, certainly the story and that's why we're doing what we do in having individuals such
as yourself and others on the program.
Just coming back to Canada for a sec, for those of our audience who don't know, the
(43:49):
Global Mills, I guess the national newspaper in Canada, I think it's still called that
and you're one of the recipients of the best 2024 executive awards.
So congratulations to that Steve.
Obviously with you know what you're doing, how you've taken the organization along with
earning to these levels, it's great to see that individual recognition as well.
(44:11):
Thank you Mark.
You know the one thing, if you're at the management level, you always look forward.
Sometimes in those quiet moments, when you're not planning where the organization is going
and how you're going to get there, you kind of reflect on whether you're doing a decent
job creating motivation for staff to follow with you or not.
And so this award I was surprised at, but you know at the same time you look at it and
(44:36):
you're pretty proud about it because I'm not getting this award because I'm doing good
audits.
You know maybe part of getting this award is because what Ernie and I have created
is causing a materially positive impact on First Nations that need it, want it, desire
it.
And so that's a bit humbling, but at the same time it's also pretty rewarding.
(44:57):
So I was surprised, but really pleased when I heard that earlier this year.
Congratulations, thank you.
Very well earned and it's credit to you and it must be nice for you to see your vision
and those of some of the others in the early days of FNFA come to fruition.
It must be an exciting and busy time.
(45:19):
Absolutely and you know some of the people that did hard work before are here in the
first part of our act, which didn't really pan out to the property tax related so much
in supporting loans, but their hard work is part of this too because it was a teamwork
to get here.
That's fantastic and we're very pleased to have yourself on.
We've had Ernie here, we've had a really great insight, FNFA and what it's doing to bring
(45:44):
economic opportunities to the Indigenous community across the country, but also about reaching
out to the capital markets and demonstrating what a great opportunity this is for investors
and now you have these different terms that match with their own needs and as you know
ESG is so important over here in the UK and Europe.
So Steve, we'd like to thank you for being on our podcast today.
(46:06):
We look forward to keeping in touch with you and seeing you over in London shortly.
Love it, count us there.
Mark Robert, it's been a pleasure and thank you for having me on.
I appreciate it.
Steve, it's great to have you here, the FNFA and the FNF.
(00:13):
MB are at the forefront of a new wave of Indigenous institutional investing.
And I think it's really changing how funding is coming to Indigenous communities and what
they can achieve with the funding they're making available.
Would you talk to our listeners a bit about your background though, about where you grew
(00:34):
up and went to school and how did you end up where you are today?
Thank you, Mark.
So, I'm not Indigenous.
My background is I have parents who, father who grew up in Cape Breton, mom who grew up
in Fredericton, New Brunswick.
But after law school, my father got a job in a town called Camelops in British Columbia.
(00:59):
And neither of you have probably ever been to Camelops, but there's a river that runs
through the town.
So, there's a north side of Camelops and a south side of Camelops.
And I would go to school and there were, you know, you make friends and friends come and
go.
But there was a consistent side of North Camelops where First Nations children, Camelops
(01:22):
Indian Band at that time, you know, you'd make friends from grade one to grade eight.
And in grade nine, you wouldn't see them anymore.
And at that time, there wasn't a lot of press or media coverage on First Nations or Indian
bands within Canada as a whole.
And it wasn't until years later that you started realizing what a reserve was in Canada, what
(01:46):
was residential school history like.
So, I started piecing together my past and the missing friends only in my 30s.
And at that time, and it probably wasn't that much different from a lot of Canadians, but
it created questions in your head.
And those questions in your head were only fulfilled after I transferred from one job
(02:08):
to FNFA and started learning more.
But it was tied to my background and tied to friendships that seemed to come and go regularly,
but for reasons I didn't understand.
And thank you for sharing that.
And I think you're right for many Canadians who are not Indigenous.
Past 20 years has been eye-opening for some how to have their eyes forcibly opened.
(02:32):
For others, it solves a number of questions they've had.
But now we're in a position with UNDRIP and the Char of Rights and Freedoms and Indigenous
Leaders and people such as you are helping Indigenous organizations take things that
next level, these economic opportunities are not just for the Indigenous people.
(02:53):
The spin-off benefits are all of Canada because Canada now has a chance to actually realize
its full potential because it's dealing with the baggage that was never addressed.
So in terms of, you know, coming to your leadership role at FNFA, do you want to talk a little
bit about how you ended up at FNA and a bit about your professional background?
(03:15):
Sure.
You get labeled in school pretty early on.
And you know, parents will come to teach your interviews and they'll say, your son is good
at mathematics.
You should pursue a course in mathematics.
Unfortunately, when I was growing up, there were standardized occupations you would be
(03:36):
steered towards.
There wasn't the wealth or variety of opportunities that kids have now.
And even if you went and talked with counselors, you know, they would hand you a pamphlet and
there may be five general areas that you'd look at and say, you know, you should be a
teacher of mathematics or you should be an accountant or you should do this or that.
(03:57):
But there wasn't a plethora of choices.
So coming out of university, needing a job like most people to pay the bills, the economy
was not in good shape.
But the one thing about accounting firms is they record things when times are good and
they record things when times are bad and they were hiring.
So I got into accounting at KPMG not because it was a passion or a love, but because the
(04:20):
door was open for employment.
But being at KPMG, you realize something about yourself pretty quickly.
You either recorded or sorry, you liked recording what other people did.
In other words, they were the decision makers and you recorded it or made sure it was recorded
properly or you looked in the mirror and you said, I would like to be a decision maker.
(04:41):
And it was pretty apparent to me that recording what other people did did not fulfill me.
I want to be the one that was in the front making the decisions.
Yes, no timing and doing the initiating of, you know, opportunities myself.
So after I got my CA degree and sat down with a senior partner at KPMG in Victoria, the
(05:05):
discussion was, where do you see yourself?
And you never liked to disappoint people.
But the look on his face when I said, I see myself working elsewhere, you know, it made
me realize his passion was accounting, but mine wasn't.
Luckily, there was an organization about three blocks away that was a KPMG audit client
(05:27):
called Municipal Finance Authority of BC.
And they were looking for an accountant in their finance here because they were a financial
authority for all of BC's municipalities.
And when I transitioned over, my knowledge in finance was pretty limited to what you
learn in university, present value, future value.
You didn't know anything about bonds, debentures, capital markets.
(05:49):
But when I got there, seeing what the news meant for the impact and interest rates, geopolitical
events, a currency crisis, world leaders' comments, it started making the work area
real life like.
And when you got up and you watched the news, you see how the impact would be.
(06:10):
So finance became a passion because it was more than just numbers.
It was tying in geopolitical around the world.
24 hours a day, world spins.
And that created a path for me to transition out of accounting into the finance area.
And I've never looked back.
Great.
Well, it sounds like that was a win-win for KPMG and you.
(06:31):
Your boss there was probably, he doesn't want to be an accountant.
What are we going to do with him?
They, of course, had a client who needed someone and look at you today.
So that's great.
Rob, do you want to talk a little bit about FNA?
Yes.
I'm curious, Steve, how similar your role at the BC Municipal Finance Authority is to
(06:54):
your role at FNFA.
And I know you oversaw the loan portfolio there.
You do similar things at the FNFA.
But, and we spoke to Ernie Daniels on our last podcast, talked a bit generally about
FNFA.
But maybe remind our listeners, first of all, what FNFA does.
(07:16):
So first question was, are they similar?
So the Municipal Finance Authority of BC is a financial body that goes and access financial
monies at low rates for municipalities, towns, villages, different other bodies within the
province of BC to do infrastructure projects.
And around the late 1990s, early 2000s, there was a knock on the door by certain First
(07:42):
Nation leaders asking whether they could join BC MFA.
In other words, get access to the low rate loans because their economies were trying to
develop and the infrastructure was trying to be developed.
And the answer was no.
The provincial act that created BC MFA said you must be a local government as created
under the province of British Columbia.
So it killed that.
(08:03):
But what it did do is after 17 years at BC MFA, I looked in the mirror one day and said,
sometimes you can spend your whole life at a job or you can take a chance and do another
job.
And I started wanting to take a chance to do another job.
So when I started putting my resume out there, the very people that knocked on the door for
(08:26):
trying to create or open the door for First Nations to also borrow at low rates, asked
whether I would take a risk, change jobs, and try to create FNFA.
And you can see how the names are similar, BC Municipal Finance Authority, First Nations
Finance Authority.
So it was purposely copied after the BC MFA model because it had been successful since
(08:49):
1970 and had a great reputation.
So they are very similar.
If you walked in and you saw what we did and you saw what BC MFA did, you say, wow, you
guys look totally like you parallel each other.
And that did occur for quite a while, but infrastructure is not the way First Nations
(09:10):
are going to create wealth because if you own a house, there are certain things that
come up called maintenance.
There are certain things that come up called repairs.
And there are certain times you have to hire people to be the maintenance or the custodians
of those.
So they are a cash user, not a cash creator in a lot of cases.
(09:30):
So where BC MFA and FNFA differ is municipalities that provide services to the public.
First Nations are to provide services to their membership.
And here's the key difference, Robert, is First Nations do not get a hundred cents on
the dollar to run their programs, social programs, health programs, education programs, their
(09:53):
governance of their administration.
They need to make up a certain sense on the dollar.
So where does it come from?
It comes from economic opportunities.
So the one difference you'll see between BC MFA, my old job in FNFA was the creation
of FNFA of the ability to lend to First Nations so that they can give them economic ventures.
(10:15):
Those profits then create the missing cents on the dollar for their programs or it allows
enough money to be leveraged into other opportunities.
So FNFA is an expansion of BC MFA's mandate, both infrastructure and now into economic
opportunities as well.
It sounds Steve like you were there in the very early days.
(10:39):
When did you join FNFA?
April 1st, 2008.
And you look at it, and April 1st is the start of the fiscal new year, so it made sense that
way.
But when I started, I thought this would be a slam dunk, six months, because there's
already proven track rates, it goes out there, municipalities banding together.
(11:01):
There's a proven track record of capital markets accepting a pool of local governments to
borrow, and they borrow close to the same rate as the province of Ontario.
So how could it be difficult?
Well my first eye opening moment was that even though First Nations saw themselves as
a level of government, the bureaucrats in Canada did not always see that way.
(11:24):
They would write checks to the chief and council, spend it on this program, social needs, spend
it on this program medical, spend it on this program health, spend it on governance within
your administration, and then they expect reports back.
They were programs.
So the challenge to turn the bureaucratic mindset from seeing First Nations as a program into
(11:47):
a level of government and give them the respect they needed was challenge number one.
And all of a sudden the real is six months ain't going to happen anymore.
It is not going to be a slam dunk, it's going to be a battle.
So I spent the first year from 2008 to almost the end of 2009 trying to convince the bureaucracy
that First Nations should be respected as a level of government and failed.
(12:09):
So if you fail, you can either turn around and run away, or you can take a different
approach.
Then I took a different approach and I said, if you can't convince the bureaucracy, then
get somebody else to convince the bureaucracy.
So in 2009 and 2010, I started going out to the credit rating agencies, Moody, Standard
and Poor's.
(12:30):
I started going out to the investors, the life insurance companies, provincial pension
plans, capital markets, players that lend monies to other levels of government and said,
if I can get a credit rating that allows access to the capital markets, will you deem First
Nations to be a level of government?
And they all said yes.
And they wrote letters of support for that.
(12:53):
So once I had that, I thought, okay, how do we leverage these letters of support into
turning the bureaucratic tide in favor of respecting them as a nation and as a level
of government?
Luckily, there was a gentleman MP in the Chilliwack area, Chuck Strahl, who said, I will stand
up in the House of Commons and I will support the creation of a second act that focuses
(13:18):
on First Nations being able to leverage their own source revenues into the capital markets
as a level of government and I will put my hand up and put a motion forward.
And it passed.
Conservative government at that time in Canada.
So with that one MP support, we were able to create a second act under which we now
(13:38):
manage our operations and it also created the path for rating agency.
We will give you the credit rating to access the market.
The investor says, we're sitting there waiting to lend you the monies as First Nations requested
and the bureaucracy said we've got orders from the political side to now treat them
as a level of government and the path was created.
(14:01):
Fantastic, well thought.
Yeah, no, it's a great story but it still was a little bit longer before you could raise
your first debenture and so there must have been more trials.
It was not six months but maybe six years from the time you joined to get that first
financing.
Yeah, so the second act came into force in November of 2011 and that's the time you just
(14:25):
interviewed Ernie Daniels, our CEO and president.
That time Ernie was hired when our second act was created because even though I could
create the road of which First Nations go down to go access low rate loans and to give
you an example today, chartered bank prime in Canada is 6.45%, almost 6.5.
(14:49):
Our lending rate is 3.95, 2.5% below bank prime.
So you can see if you were simply doing it on mathematics you'd say absolutely I'm going
down that path, why would I not because every return on investment is going to be that much
higher but what I didn't understand was the history of First Nations and how they were
(15:10):
used to knocking on Canada's door to try to access funding every year, how they were
completely overloaded with the reports that they had to complete on the program monies
they received and an education was needed for them to understand what the capital markets
were, what is the debenture, etc.
(15:31):
So I did not have the trust or even the knowledge of what First Nations, how they operated and
they didn't have the knowledge or trust of how I operated.
So Ernie and I symbiotically complimented each other very well because if you listen
to his podcast you'll find out his history is in different areas of First Nations departments
(15:55):
not departments but organizations that have created a good comfort level with his name
and what he's done over the period of time.
So when we would go present together to First Nations communities I could tell them about
what the economic opportunity or mathematical advantage was to joining FNFA.
(16:16):
He could then tell them about the comfort level of why they should take a risk of joining
with us and taking a new path.
So it wasn't just creating the path but it was also creating their understanding, their
trust and their comfort that they would take a risk of going with us.
And in 2012, June of 2012 our first loan went out the door but it took two years to get
(16:40):
our second and third and fourth and enough loans out the door that they accumulated to
a large enough amount that in June of 2014 we could turn those short-term loans into
a debenture.
So it took a while but trust and comfort of the communities was the key pivot that allowed
us to succeed.
And it seems to have snowballed from there 10 years after that first debenture.
(17:05):
Ten is it?
The debentures have been issued more than $2 billion raised.
Maybe just some highlights for the past year would be helpful.
What sorts of investments have you made?
Yeah, I know Ernie talked about what reconciliation means now.
You know you have Canada and certain provinces have passed undripped, United Nations Declaration
on the Rights of Indigenous People.
(17:27):
That's a piece of paper and it allows you to shake hands, take pictures and everybody
feels good about themselves but it doesn't create those missing dollars under your budget
as a First Nation community to operate your programs.
You need more than just a handshake and a photo opportunity.
So when economic reconciliation started transitioning both in the public eye and the government
(17:48):
eye at the federal and provincial level into economic reconciliation, we finally had opportunities
to start looking at not just funding infrastructure, which is needed to make communities healthy
but it doesn't always allow growth and it doesn't allow profits to come in.
So 2021 was the first time that FNFA, we took a risk.
(18:10):
Ernie and I sat down and we were knocked on the door by seven MiCMaw communities in the
Atlantic Canada.
They wanted to be 50% owners of seafood, our Clearwater Seafoods.
Never happened before.
Two things, we've never had a group of First Nations wanting to work together on an economic
venture and we'd never lent 250 million a large size for us at that time in 2021 to
(18:35):
take a risk that wasn't infrastructure but it was business related.
And that led into hiring outside legal councils, doing due diligence on the financial economic
side, taking a look at the capital markets reports on whether Clearwater Seafoods was
a well-run company.
What was the capacity for the market to absorb the certain amount of seafood or harvest that
(18:57):
the company had?
But in January of 2021, after lengthy discussions with those seven communities and our board
of directors, we put our thumbs up and said, let's fund this opportunity.
That transitioned us into knocking on investors' doors and said, we're raising money for infrastructure.
Here's a picture of a building.
Here's a picture of a water system.
(19:18):
Here's a picture of housing.
Into a picture of business.
And it allowed something else to come out, Mark and Robert, because for the first time
we started realizing we need to do communications on what we do.
It's no longer a picture.
We need to do testimonials of what the impact of these economic ventures are to the communities.
(19:38):
What is a human story?
What did chief and council do with the profits that Canada had not fulfilled under their
obligation for infrastructure creation?
Sometimes we would do videos.
And by doing that, when we sat down with investors in Canada, US, Europe, Asia, all of a sudden
it wasn't so much the dollar size that mattered anymore.
(20:00):
250 million, that's fine.
Now we're doing 500 million.
This year we're going to do 1.2 billion in 2024.
It became the story because as we were transitioning from infrastructure to economic reconciliation
ventures, investors out there were transitioning to social investing.
What is our money doing when we lend it?
(20:22):
Is it causing harm or is it causing good?
And so when we would sit down, near me and I with the investors and show them the videos
and show them the human side of the story, all of a sudden you start to see our ability
to raise the money needed by our membership grew substantially.
Our largest client, as you know, is a 50.1% owner of Cedar LNG.
(20:47):
1.4 billion dollars are board approved for that project.
So we were fortunate that as we were changing, the people that invested in us were changing
also.
And so going forward, you're going to see economic ventures increase in size.
You're going to see first nations that can't do economic ventures individually will partner
with others, but the good thing about that, that means that nobody is left behind.
(21:12):
And no matter what size first nation you are, what your capacity is internally, you're going
to have opportunities to have profits to come in and make those community priorities a reality
which they weren't 10 years ago.
That's great.
You mentioned nations of different sizes.
Ernie told us almost 170 borrowing members the moment and so first nations of different
(21:36):
shapes and sizes.
I take it it's not just then wealthy first nations that are able to take advantage of
some of the funding that FNFA can provide.
No, if we could only fund wealthy, creating the half communities economically and the
half not communities economically.
So the model that was created that I spent three and a half years trying to get the legislation
(21:57):
through didn't differentiate between size or capacity.
And just like you would drive through the province from which we situated, we're on
West Bank first nation lands our office, but the province of BC has communities that have
300 people and they have greater Vancouver that has 3 million people.
But each one of them have needs and first nations you can have community that's 210
(22:21):
members and you can have some that have 13,000 members, but they all have needs.
So the model that was created didn't differentiate between size or needs.
What it did say was for every first nation that joins FNFA and we'll go back through
the numbers.
There are 634 first nations across Canada, 367 have put up their hands voluntarily and
(22:44):
said they'd like to be added to the act.
So over almost 60% in Canada, 190 of those 367 have completed the full process for FNFA
membership.
So we're at about one third of the communities in Canada.
Our first dimension 2014 we had 13 members.
So we've gone from 13 up substantially and it will continue to grow.
(23:07):
But when we created the model, it's just like you can go and show the bank what you have
as a salary and they will do two things.
They will give you a credit card with a certain limit based upon your ability to pay and they
will give you a mortgage or a line of credit up to a certain limit based upon your ability
to pay.
So our model goes upon what can a community afford to pay so we're not doing harm.
(23:33):
What revenue streams do they have that can support that loan and make sure when we lend
we're not causing those revenue streams to go from a surplus situation under audited
statements to a deficit situation.
And it doesn't matter whether your capacity to borrow is a million dollars or 500 million
dollars.
I say 500 because our largest client right now has 500 million outstanding by themselves.
(23:56):
So it's meant to allow communities to grow at their own pace in a safe way at their own
timing but not in a way that's going to overload them with debt that will harm their bottom
line.
Can you talk a little bit about you mentioned some of the social investors in ESG.
Do you have those types of funds or sustainability funds invested or lending to you buying?
(24:21):
The debentures.
Does every investment you make have to pass sustainability test and maybe are there any
sectors that you just won't invest in because of some of that criteria?
Robert, great question.
You know, well seven years ago when ESG and social investing came along I had no idea
(24:42):
whether it was going to be a flavor of the day or whether it was going to persist and
grow.
In some parts of the world it's more formalized than it is within Canada.
Europe for example is very formulaic which could be a good thing.
In Canada it's more individual by investor.
What are their policies?
What's their checklist?
What do they look for?
When I started putting together the ESG the first step was to gather information from
(25:06):
our First Nation members on what projects they were having come up because we're already
funded the ones they had but what was coming up.
And then once we had that, we had a Bernie and I created a board retreat.
We have 11 board members from BC all the way to the east coast of Canada in Nova Scotia
and we started talking about how there was a changing landscape of what investors were
(25:27):
looking for because we compete with monies.
We compete with the cities.
We compete with the provinces and if we can't compete then the investors are going to fund
them but not us.
And the Chairman of FNFA put up his hand and said, Steve, and his name is Warren Tobogganong
from Wasauksing First Nation in Ontario.
He said, did you know that most First Nations have a constitution or a land code that identifies
(25:54):
that Chief and Council can't borrow if it's going to cause harm to the air, land or water?
And I'd been here for over 10 years and I had no idea.
I probably had never looked at a constitution or a land code but when we started going through
it and then we found that the Deputy Chair said, well, we have one too but we call it
(26:15):
a land code, not a constitution.
It started to show that ingrained in First Nations Chiefs and Councils communities and
limitations on what they can ask for is the very ESG components that investors were looking
for.
It just wasn't formalized.
It was formalized at their community level but cities of Ottawa, capital of Canada may
(26:37):
have a policy that they want to do a green bond but I don't think they have something
that formulates it in a constitution like our membership.
So we have not today gone and got a third party opinion on what our lending practices
are, whether it meets ESG or sustainable or social bond qualities but what we do do is
(26:58):
make transparent to each investor the access to the constitution or land code of the communities
that are boring.
We show the projects that they're boring for, the impact on the community, job creation
and basically how it's going to transition that community from point A to point B.
And then we let each investor decide whether it meets their checklist or not.
(27:21):
We do do something different with Bloomberg though.
When Bloomberg puts our debenture issuance information up on their screen, they go through
a checklist with us through every loan that we make for that particular debenture and
today we've been successful to get the sustainability tag.
So no formalization of a third party opinion but we do go through the Bloomberg process
(27:42):
to make sure it's deemed sustainable on their informational site.
Wow, that speaks volumes.
Yeah, it's a unique setup but perhaps in some way it keeps FNFA from shifting because we
are not in charge of changing land codes or constitutions at the community level.
It's ingrained for them so that limits us into certain areas.
(28:06):
So what can we not do?
Well we won't get into certain areas, I'd be very surprised, we're going into areas
of gun manufacturing, cigarette manufacturing.
Those areas that are deemed to be offside, there's always going to be investors that
will buy it but because we borrow as a group, we have to make sure that letting anyone loan
(28:28):
in does not harm the group itself.
And does that go for the pooled revenues as well that are in the pool?
Are there restrictions on what types of revenues will be allowed to back?
Yeah, so the revenues were a key part of getting the second act which I worked on together
because you can accept First Nations the level of government, okay that's fine, that's a
(28:49):
respect level.
But the second thing is what's safe to lend them money?
Will it come back in the form of loan service payments every six months to the investors?
So the second act said a couple of things, it said that if a First Nation is going to
join FNFA and request a loan, then FNFA is obligated to take a look into the sustainability,
(29:13):
the strength and the consistency of the revenue stream.
So we do a due diligence on that and if you see a revenue stream that fluctuates up and
down and perhaps cannot service loaned consistently every six months, you either add a second
stream to it to make it safe or that stream is not viable for loan service.
And then the act did a second thing, I put in there something that Ernie mentioned called
(29:37):
the revenue intercept model.
So keep in mind if you remember 2008 and 2009 where it was a housing crash in the US and
building an act to try to get capital market acceptance during that period of time, you
had to create comfort levels and safeguards.
So revenue intercept is First Nation if they join FNFA and they want to take out a loan
(30:02):
or request a loan, then they take a look at the revenue agreements they have and every
First Nation have revenue agreements with the province in which they reside and those
are strong consistent stable revenue streams.
But chief and council when they want to take out a loan, send to the province what's called
a redirection letter and they said province use to send that money to our bank account,
(30:24):
we're now going to take out a loan with FNFA, please redirect it to FNFA's trust account
and those trust accounts have a very simple job, they're a clearing account, pay FNFA
to loan service and two days later when all the money clears, give the balance back to
chief and council to spend on their community.
So the revenue streams are absolutely key to how we lend and if they do not meet the
(30:47):
stability, strength and consistency tests, they cannot support a loan by themselves,
maybe together with another stream.
When we got into economic reconciliation, all of a sudden we started adding the second
level of streams and that was future agreements with potential projects, you could have provincial
hydro agreements that are under our purchase agreement and those are contracts so we could
(31:12):
lend against those.
You can have transmission line agreements with the province, you can start having certain
companies whose strength of operations meet capital market tests, in other words the credit
departments of the banks would lend to them also.
So we are absolutely focused on the strength of the revenue stream because as Ernie mentioned,
(31:33):
we don't just make a loan to a community, we borrow as a group and the group is 190
First Nations within FNFA that said we all stand behind each other's loan and the last
check is our board of directors from BC to Nova Scotia have to be unanimous in accepting
a loan request so they take a look at the strength of the revenue stream, they take
(31:56):
a look at its sufficiency to cover loan service, they take a look at the project, the impact
on the community, they take a look at does the revenue stream exist as long as a loan
service term and if any one of them is uncomfortable, loans don't occur.
So to date we have had zero late payments, we've had zero losses but it's all because
(32:19):
of the process set up to make sure if you're going to borrow as a group you protect everybody
within the group so the revenue streams are absolutely key and essential focus for us
for each loan.
In your governance structure the board is made up of just representatives of the members,
correct?
There's no outsiders or even management on the board and the board reviews every single
(32:43):
loan proposal?
Absolutely.
So in order for a joint several group to mean anything which means one for all, all for
one, you have to make the decision makers request in the loan have to be able to speak
on behalf of their community.
So who speaks on behalf of the community?
Elected Chiefs and elected councillors.
So our 11 board members are either Chiefs or councillors from amongst our membership
(33:07):
and every July we have an AGM and every July the membership votes on who they would like
to represent them for the next 12 months.
So you have to be a Chief and you have to be a councillor so that it means you do speak
on behalf of your community and therefore you also speak on behalf of 190 FNFA members.
(33:28):
We cannot have anybody outside because of a problem developed.
You'd say that one board member who's not a Chief or a councillor said well I don't
have any skin in the game.
I am not a Chief, I'm not a councillor, I can't bind my community to this problem
so it doesn't impact me.
So the rating agencies made it very clear and I agree with them that if you're going
(33:49):
to borrow large sums of money then the people that should be on the board deciding whether
that loan occurs or not occurred are ones that are impacted by the decision making and
therefore it is a Chief or it is a councillor from amongst our membership.
Impressive.
Maybe Steve it would be worth talking.
We had Chief Crystal Smith on a podcast a few weeks ago.
(34:11):
She was very complimentary of your role in the FNFA's role in financing helping finance
Cedar LNG.
Could you tell us a little bit about how that transaction evolved and closed earlier this
year?
Ah, Cedar LNG is one of the reasons why transitioning out of accounting where you go home at the
(34:32):
end of the day and you talk to your family about oh I guess what I did today I audited
this and nobody listens to you into financing projects that have absolutely material beneficial
impacts on community life.
Love it.
So Cedar LNG is a prime example of how Canada's 4,000 miles long probably 6,000 from coast
(34:55):
to coast and each geographical area or province and within Canada has different opportunities
for the First Nations in that area.
So you go to the East Coast, they're business related opportunities that's why they work
as groups.
You go into Central Canada, Quebec and Ontario and they focus on electricity generation.
It could be through wind farms, it could be through solar, it could be through transmission
(35:19):
lines.
You go into the prairies and they have different opportunities there and then you get into
BC and Cedar LNG is on the West Coast of BC and a community called Heisler First Nation
who spent years working on this long before I came along so the hard work was done prior
to me getting involved in the financial side and Ernie getting involved in the financial
(35:39):
side.
But in BC a lot of projects are resource based.
Some are continuing to be opportunities for electrical power generation but LNG is what
we have in BC and sometimes in Alberta that crosses the BC lands but the key thing is
you have this massive population in Asia and this massive population is transitioning
(36:04):
very quickly from rural to urban environments for jobs, for a change of lifestyle but how
do you create electricity for them over in Asia?
A lot of it's coal based still.
Coal is not a great thing for the global environment and so transition away from coal into LNG
which may not be the ultimate place you want to get to because it is still a fossil fuel
(36:28):
but it is a lot cleaner is what the opportunity was.
When we got contacted by Heisler First Nation the first thing they threw out was it is potentially
up to $1.4 billion.
Our largest loan to that time to any one community was $350 million and so we had a factor going
(36:50):
up four times and it completely changed how we did our analysis within FNFA because we
had a board of directors that was used to certain business opportunities and infrastructure
needs but when we got into something that large and a construction term of four and
a half years it completely rewrote how we did our analysis, started looking at getting
(37:14):
lawyers that were familiar with these type of ventures.
We started working with our banking syndicate the Chartered Banks Capital, Capital Marcus
Division of the Chartered Banks to find out their reports.
We took a look at the private sector side and we piggybacked on their data profiles
or pages within the data room and the information and the forecast but what it did do is it
(37:39):
got our board comfortable after six months of discussing it and going back and get more
information, more information that we developed a process that now allows future opportunities
that come forward to be much more smooth lined and much more what you would call a transition
from where their former needs were infrastructure into large scale opportunities.
(38:03):
So our board had to transition too and you can go back and say we're a joint several
group where you protect each other within the pool and all of a sudden you're going
to have one community that's going to have a materially larger loan than anybody else
within the pool.
So two things came out of it, one FNFA transition itself which was really needed because economic
(38:24):
reconciliation we have to grow as our clients grow and change and second of all our board
has now transitioned into a business evaluation board and that means that as opportunities
come down in different parts of Canada which is why we have board members from BC on the
west coast, Donovan Scotia on the east coast, they are usually familiar with the opportunities
(38:46):
within their geographical area themselves and sometimes they're familiar with looking
at the contracts the lawyers put in front of them say we have a similar agreement, different
in size but we have a similar agreement, we see the safeguards, we see the shareholder
agreement points, we see what protects the communities etc etc and it has allowed us
(39:07):
to grow.
So going forward if economic reconciliation is a way for First Nations to get profit,
to close the funding gap on their programs, we had to transition to be ready for it and
luckily that one project pushed us into that area so we're good to go for the forward as
growth and opportunities go as well.
Fantastic, in the end I don't think you did the full 1.4 but what's your piece of that?
(39:34):
So we actually did approve the 1.4 but because it's a construction project, we have 250 million
has gone out so far, in the first 2.25 of 2025 another drawdown will happen so the money
is being drawn down, same as you would draw it online as you build your house, pay the
architect, pay the contractor etc, we are having the high-stah drawdown the money as
(39:59):
their needs to fund construction occur and under that something else transitions so if
you took a look at our debentures to date, Ernie mentioned we've done 11, they were all
tenured debentures even though our clients had the right to repay over 30 years, we
would lock in interest for 10 years and then refinance and the reason for that was our
(40:21):
debentures weren't large enough to say some of our clients have a 30-year need so we'll
do a 30-year debenture, some of them only want 10 years, we'll do 10 years, it would
have fractured our debentures into smaller sizes and investors would have said I don't
like the smaller sizes because they like liquidity which is the ability to have a large debenture
they can buy and sell and find easy. What the Heisler CDR LNG 1.4 billion is going to
(40:44):
do is contractually it says they want not to have a 10-year but they want a 30-year
debenture so that opens up our talking with investors who no longer want to fund 10 years
but they love 30 years and it could be a life insurance company, it could be a reinsurance
company, it could be a pension plan that says we invest long term because our employers,
(41:05):
some of them are going to be working here for 30 years or retire for 30 years so the
CDR LNG has not only created our opportunity to fund larger sizes but it's opened our
ability to converse with investors who didn't pay attention to us in the 10-year area but
definitely pay attention, we start talking 30 years so it has transitioned us into an
(41:26):
organisation that's growing where we weren't there a couple years ago.
You have investors from outside of Canada, we understand, can you tell a little bit more
about the international investor profile?
Yes, and that's something we're very interested in exploring speaking in front of a European
base because sometimes as I mentioned it's a storytelling that attracts the investor
(41:47):
base so we have investors and as Ernie mentioned we can't name names but we have a number of
investors in different countries in Europe based upon the social and what they perceive
under their checklist, the ESG lending that we do, we have a number of investors in Eastern
US and we've had that since 2014 but it's growing and we have investors, there's a central
(42:12):
bank in Asia and there's also another central bank in Europe so it's the storytelling that
is starting to capture the interest of these investors because it's very repetitive and
I used to do investing at BCMFA, you buy the same bonds over and over again but it doesn't
move you as an investor into that social area that you want to go.
(42:34):
As FNFA's debentures get bigger, those investors that weren't interested when we did 100 million
but now we do 500 million or 1.2 billion this year, they're saying you're up to a sufficient
size where we would like to participate because we also transition now into a social investing
area through FNFA.
So Europe is going to be a key one going forward because social ESG is a key investment criteria
(43:00):
there, sometimes in the US but not always but it's also starting to grow in Asia as
the transition from coal into LNG is starting to occur.
So as we grow our investment base throughout outside of Canada is going to be needed to
grow too so we're excited about that because we're all seem to be developing together.
Will please mark the first week of April 2025 in your calendar, the second annual Canadian
(43:25):
Indigenous Investment Summit here in London.
We would be very interested in that because I think the time is to start educating those
as our needs start growing into areas that they would perceive that they would welcome
also.
Yes, certainly the story and that's why we're doing what we do in having individuals such
as yourself and others on the program.
Just coming back to Canada for a sec, for those of our audience who don't know, the
(43:49):
Global Mills, I guess the national newspaper in Canada, I think it's still called that
and you're one of the recipients of the best 2024 executive awards.
So congratulations to that Steve.
Obviously with you know what you're doing, how you've taken the organization along with
earning to these levels, it's great to see that individual recognition as well.
(44:11):
Thank you Mark.
You know the one thing, if you're at the management level, you always look forward.
Sometimes in those quiet moments, when you're not planning where the organization is going
and how you're going to get there, you kind of reflect on whether you're doing a decent
job creating motivation for staff to follow with you or not.
And so this award I was surprised at, but you know at the same time you look at it and
(44:36):
you're pretty proud about it because I'm not getting this award because I'm doing good
audits.
You know maybe part of getting this award is because what Ernie and I have created
is causing a materially positive impact on First Nations that need it, want it, desire
it.
And so that's a bit humbling, but at the same time it's also pretty rewarding.
(44:57):
So I was surprised, but really pleased when I heard that earlier this year.
Congratulations, thank you.
Very well earned and it's credit to you and it must be nice for you to see your vision
and those of some of the others in the early days of FNFA come to fruition.
It must be an exciting and busy time.
(45:19):
Absolutely and you know some of the people that did hard work before are here in the
first part of our act, which didn't really pan out to the property tax related so much
in supporting loans, but their hard work is part of this too because it was a teamwork
to get here.
That's fantastic and we're very pleased to have yourself on.
We've had Ernie here, we've had a really great insight, FNFA and what it's doing to bring
(45:44):
economic opportunities to the Indigenous community across the country, but also about reaching
out to the capital markets and demonstrating what a great opportunity this is for investors
and now you have these different terms that match with their own needs and as you know
ESG is so important over here in the UK and Europe.
So Steve, we'd like to thank you for being on our podcast today.
(46:06):
We look forward to keeping in touch with you and seeing you over in London shortly.
Love it, count us there.
Mark Robert, it's been a pleasure and thank you for having me on.
I appreciate it.
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