Export Development Canada, a government-owned lender and insurer, has stopped writing new policies to protect Canadian auto parts makers in the event of a bankruptcy filing by Chrysler.

A spokesman for the Ottawa-based insurer, Phil Taylor, said by e-mail on Monday that Export Development Canada would honor existing insurance policies covering receivables for Chrysler suppliers, but that current clients would not be able to increase their coverage and that new policies were not being written.

“The change was based in credit consideration,” he said. “We have to balance our mandate with our credit decisions.”

The decision by the E.D.C., as the lender is known, may create problems for small- and medium-size parts makers, said Gerry Fedchun, president of the Automotive Parts Manufacturers’ Association, a trade group.

Mr. Fedchun said that Canadian parts makers are disproportionately dependent on Chrysler, which has several plants in Northern states, as well as two large factories in Ontario.

“The fact that E.D.C. isn’t issuing new stuff tells us that this situation is very, very, very grave,” Mr. Fedchun said. “Because they are a government-backed bank, they are more risk-tolerant.”

Lenders generally require that small and medium-size auto parts makers acquire insurance against the possibility that their customers will not pay outstanding bills because of bankruptcy.

The export agency insures auto parts sold to the Canadian plants of carmakers because most vehicles assembled here are shipped to the United States.

In the current economic climate, Mr. Fedchun said, the agency has become almost the only source of receivables insurance. The few policies still available from other underwriters, he said, come with premiums as high as 10 percent, far above typical margins of parts makers.

Original Story - New York Times