Deal-making in the first half of 2007 was fueled by aggressive lending terms offered by banks, commercial lenders, pension funds and others competing for pieces of the action. Safeguards that lenders usually rely upon were relaxed in the drive to generate fee income.

But the meltdown in the US subprime mortgage market led to credit spread adjustments, conditions were once again attached to financing commitments, and leverage requirements were tightened. That’s the credit crunch we’ve been dealing with since midsummer 2007, and those are the general circumstances that will define M&A activity in Canada and other developed economies throughout 2008, according to a report by the Canadian law firm Torys LLP.

As today’s announcement by Citigroup indicates, the depth and breadth of what we call for simplicity sake the subprime crisis is yet to be defined. Because the North American banking industry still has no concrete idea how much it will cost and how long it will take to find a bottom-dollar figure, the cautious approach adopted in the second half of 2007 will persist.

But as we’ve conveyed here and in Canadian Edge, borrowers with solid fundamentals will still be able to access credit. Terms will be more restrictive–that is to say, more in line with historical norms as opposed to the gluttonous parameters we saw in early 2007.

On Tuesday, the Bank of Nova Scotia predicted in its “Global Outlook” report that the broad effects of the subprime crisis would ripple across the globe during the first half of 2008. Weakening production and job creation are to be expected based on tightening credit conditions, reduced global trade and consumer belt-tightening.

As far as Canada’s economy is concerned, though, performance will be bolstered by recent tax cuts, relatively strong consumer fundamentals and still-robust commodity exports. The bank forecast GDP growth above 2.2 percent for the next two years.

The Canadian dollar should show “continued buoyancy in commodity markets through 2008.”

“The loonie’s meteoric rise against the US currency partly reflects Canada’s newfound attraction as a resource-rich economy in a resource-short world,” the report said.

Polls…What Are They Good For?

What with the fiasco that became the pre-voting polling data and the actual results on the day of the New Hampshire presidential primary, our view on any sort of political temperature-taking is a little less certain.

However, politicians will continue to use them to chart policy courses as well as to guide election decisions. Such is the case in Canada, though two recent polls suggest different scenarios.

According to an Ipsos-Reid survey conducted for Canwest News Service and Global National, the Liberals have taken a two-point lead over the Conservatives. Stephane Dion’s opposition party has the support of 35 percent of Canadians, while Stephen Harper’s Tories are at 33 percent.

The lead reversal from a similar poll two weeks ago is the result of a 23-point Conservative slide in Alberta, a province considered the bastion of Torydom. Much of that decline is traced to Alberta Premier Ed Stelmach’s decision to change the royalty structure for oil and gas companies.

However, a recent Canadian Press Harris-Decima survey suggests the Tories hold a 37-percent-to-30-percent advantage over the Liberals. On Dec. 19, a Harris-Decima survey recorded the Tories at a 32-30 disadvantage behind the Liberals.

The seemingly conflicting poll results suggest that another election would produce another minority parliament, although it may be led by Dion and the Liberals. A slim win resulting in a new Liberal minority government would be great news for the beleaguered leader, but another minority win for Harper would be a huge blow. Anything short of a majority for the sitting prime minister is likely to be cast as a defeat.

Dion has said the Liberals don’t plan to introduce a confidence vote before the next budget in February or March and has avoided speculating on whether they’ll try to bring down the minority government over the budget.

Obama, O Canada

Toronto Globe and Mail political columnist Lawrence Martin suggests first-term senator from Illinois and rock-star US presidential candidate Barack Obama could impact politics on a continentwide scale.

Following up on a Thursday column in which he discussed the US presidential election and its possible impact on Canada with a question-and-answer session with Globe and Mail readers, Martin said Obama could lead “a liberal generational shift in politics, which could spread across the border. The young are getting excited about Obama and his global vision and new politics. He is a threat to all old-style conservatives.”

Whether or not you agree with Martin’s thesis or support his campaign, Obama may be the one candidate in the arena capable of, for example, articulating a rationale for extending President Bush’s 2003 dividend tax cuts on the basis that it encourages regular, middle-class investors to account for their own retirement. In other words, he may have the vision and the skill to make a populist argument on this issue.

Speaking Engagements

Join me and my colleagues Personal Finance Editor Neil George and Associate Editor Elliott Gue in the Sunshine Shine state for the World Money Show in Orlando Feb. 6-9, 2008, at the Gaylord Palms Resort. Reserve your spot today by calling 800-970-4355 and mentioning priority code 009859, or click here to register online. Be sure to tell them I sent you.

The Roundup

Trinidad Energy Services Income Trust (TSX: TDG-U, OTC: TDGNF) announced last week that it would convert back to a traditional corporate form, a development detailed in a flash alert last Thursday.

The upshot: Trinidad will remain a high-dividend-paying entity. Among the alternatives available to trusts in contemplation of the 2011 imposition of a tax on distributable cash, this is one we’ve often pointed to as highly likely for strong, well-run businesses.

We’ll have more on Trinidad and what its transition could mean for similarly strong trusts in coming issues of CE and MLM. 

Oil & Gas

ARC Energy Trust (TSX: AET-U, OTC: AETUF) is doubling the amount it plans to spend on the Dawson natural gas play in British Columbia to CAD40 million, bringing its overall capital program for 2008 to CAD395 million.

ARC said two recent discoveries have extended the play westward and hold the potential to add significant reserves and production. ARC’s play is part of the Montney, a tight sand resource play west of Dawson Creek, which drew a flurry of bidders last month. The British Columbia government took in CAD401 million in its December sale of oil and gas rights.

EnCana Corp has also amassed a large position in the Montney and is believed to have been one of the leading bidders at the sale, where four packages drew a total of CAD263 million and an average price of CAD13,000 a hectare. Other operators see tremendous potential in this area, and the fact that the play is outside Alberta–where the provincial government is set to raise royalty rates on oil and gas development–is another bonus.

ARC has been slower to ramp up exploration than other operators in the area; it has a lot of land there now and can develop it at whatever pace it chooses. If prices rise, ARC can throw more money at it. ARC Energy Trust is a buy up to USD23.

Crescent Point Energy Trust (TSX: CPG-U, OTC: CPGCF) announced that it closed an offering of 5.2 million trust units at CAD24.25 per unit for total proceeds of CAD125 million. The first cash distribution the new units will participate in will be for January, which will be paid Feb. 15.

Crescent Point also announced the acquisition of privately held oil and gas company Landex Petroleum Corp for CAD310 million in cash, units, debt and up to CAD60 million in shares of Shelter Bay Energy. The deal is subject to approval by shareholders of Shelter Bay, who separately agreed in a related transaction to sell 20 percent of its stock to Crescent Point for CAD60 million cash.

Shelter Bay will eventually acquire the Bakken assets of Landex, which are producing approximately 2,500 barrels of oil equivalent per day (boe/d) for CAD230 million, and Crescent Point will retain the non-Bakken assets of Landex, which are producing approximately 1,500 boe/d, for CAD80 million. Crescent Point Energy Trust is a buy up to USD26.

Penn West Energy Trust (NYSE: PWE, TSX: PWT-U) announced that its deals with Vault Energy Trust (TSX: VNG-U, OTC: VNGFF) and Canetic Resources Trust (NYSE: CNE, TSX: CNE-U) have been deemed by the Canadian Minister of Industry “to be of net benefit to Canada.”

To get the approvals, Penn West committed to spending significant capital on the development of the Vault and Canetic properties; maintaining its head offices in Calgary and continuing to carry out its head office functions in Canada; and maintaining certain aggregate employment levels and utilizing its expertise in–and ability to fund–unconventional resource exploitation and development through a focused evaluation of potential large-scale, multiyear projects and other opportunities for the exploitation, development and optimization of Vault’s and Canetic’s unconventional resource properties.

Penn West’s 2008 capital expenditure program will approximate CAD900 million. Penn West Energy Trust is a buy up to USD38. Sell Vault Energy Trust and hold Canetic Resources Trust.

Business Trusts

Medical Facilities Corp (TSX: DR-U, OTC: MFCSF) has acquired 51 percent of Surgery Center of Newport Coast LLC, an ambulatory surgery center (ASC) in Newport Beach, Calif., for total cash consideration of USD29 million. Newport Coast is a licensed ASC that generated approximately USD11.6 million in net patient service revenue in fiscal 2006.

The transaction is forecast to be immediately accretive on a pro-forma basis (for the 12-month period ended Dec. 31, 2007) to Medical Facilities’ cash available for distribution per unit. The acquisition was financed through Medical Facilities’ acquisition credit facility. Hold Medical Facilities Corp.

Real Estate Trusts

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) bought two adjoining apartment properties in north Toronto consisting of 143 mid-tier suites for CAD14 million (CAD98,000 per suite). The REIT used a new Canada Mortgage and Housing Corporation loan of CAD10.8 million for a five-year term at 4.69 percent.

The balance of the purchase was funded from the REIT’s existing acquisition line of credit. The occupancy rate for the complex is 98.6 percent. Buy Canadian Apartment Properties REIT up to USD20.

RioCan REIT (TSX: REI-U, OTC: RIOCF) has repaid its 01/04/08 3.85 percent CAD110 million Series E debentures using a new CAD110 million secured revolving bank facility. RioCan has CAD880 million of debentures outstanding; the next debenture matures on Sept. 21, 2009.

Its current outstanding debentures payable bear interest at a weighted average rate of 5.22 percent per annum. RioCan REIT is a buy up to USD25.