Écrit par Kristopher Hanc, John Piasta, Jason Wang and Shari Gasch
On September 21, 2023, the Canada Securities Administrators (CSA) published a notice and request for comment regarding proposed amendments to National Instrument 44-102—Shelf Distributions (NI 44-102) and other securities law instruments (Proposed Amendments). The Proposed Amendments would permit mature well-established companies to raise capital without undergoing regulatory reviews. The CSA is seeking public comment from stakeholders in writing until December 20, 2023.
Background
The Proposed Amendments are modeled after the corresponding filing framework in the United States, existing since 2005, which has permitted mature corporations to obtain well-known seasoned issuer (WKSI) status and conduct expedited securities offerings.
Canadian securities regulators launched a pilot project in January of 2022 (Pilot Project) as a result of consultations on curbing regulatory costs, support from Canadian issuers and recommendations from the Ontario Government's Capital Markets Modernization Taskforce. The Pilot Project provided for the adoption of a WKSI program. Temporary exemptions, in effect since January 4, 2022, applicable to certain base shelf prospectus requirements were granted through blanket orders to reduce offering costs for WKSIs. The Pilot Project would be replaced and codified by the Proposed Amendments to allow qualified WKSIs to make a single filing of a final base shelf prospectus (see Bennett Jones' blog post from December 14, 2021, Canadian Securities Regulators Adopt Exemptions from Certain Base Shelf Prospectus Requirements). The Pilot Project was introduced as a further step in the CSA's initiative to reduce the regulatory burden on Canadian reporting issuers in order to encourage capital formation by WKSIs. The CSA indicated that the costs associated with reviews of base shelf prospectuses filed by WKSIs are not justified as it is unlikely that substantive deficiencies requiring regulatory invention would be discovered.
WKSI Program
Under the Proposed Amendments, eligible WKSIs would be able to:
- forego the filing of a preliminary base shelf prospectus;
- file a final base shelf prospectus that is immediately effective through the deemed issuance of a receipt;
- conduct offerings under the base shelf prospectus for up to 37 months, rather than the current period of 25 months; and
- omit certain disclosures from the base shelf prospectus, including the aggregate dollar amount and number of securities qualified under the prospectus, a plan of distribution, a description of the securities being distributed and any selling securityholders.
The Proposed Amendments would also allow qualified WKSIs to issue an unlimited dollar amount of securities under the base shelf prospectus.
Who is Eligible?
An issuer must meet the following criteria to be eligible to file a WKSI base shelf prospectus:
- be a WKSI;
- not be an investment fund; and
- be an "eligible issuer".
Under the Proposed Amendments, to qualify as a WKSI, an issuer must satisfy all of the following conditions:
- on at least one day during the preceding 60 days, the issuer had:
- at least C$500 million of qualifying public equity (i.e., listed securities excluding those held by an affiliate or reporting insider of the issuer); or
- at least C$1 billion of qualifying public debt (i.e., non-convertible debt securities distributed by the issuer under a prospectus for cash within the preceding three years);
- the issuer is and has been a reporting issuer in a jurisdiction of Canada for the preceding three years (a notable increase to the one-year seasoning period under the Pilot Project);
- the issuer is otherwise qualified to file a short form prospectus under Canadian short form prospectus rules;
- the issuer has no outstanding asset-backed securities; and
- if the issuer has a mineral project, the issuer's most recent annual financial statements disclose gross revenue from mining operations of at least C$55 million in the last year and at least C$165 million in aggregate for the three most recently completed financial years.
In order for a WKSI to qualify as an eligible issuer, it must meet the following requirements, among others:
- all requisite periodic and timely disclosure documents required under securities laws, an order from the regulator or an undertaking given by the issuer to a regulator must have been filed by the issuer; and
- during the preceding three years:
- the issuer and any parties with which it completed a restructuring transaction must not have been an issuer whose operations ceased or whose principal asset is cash, cash equivalents or its exchange listing (i.e., SPAC or other shell issuers);
- the issuer must not have become bankrupt nor made a proposal in bankruptcy or insolvency nor been subject to or instituted any proceeding, arrangement or compromise with creditors nor been subject to a receivership;
- the issuer and its subsidiaries must have not been the subject of an order, judgment or any other sanction or penalty related to a claim based in whole or in part on fraud, theft, deceit, misrepresentation, conspiracy, insider trading, unregistered activity or illegal distribution; and
- the issuer must have not been the subject of a cease trade order or suspension of trading in Canada or the United States.
Changes from the Pilot Project
- WKSI Eligibility: The issuer's "public float" under the Pilot Project must be at least C$500 million (which, as defined, only excludes securities held by affiliates) in order to meet WKSI eligibility. The definition of "qualifying public equity" under the Proposed Amendments further excludes securities held by reporting insiders of the issuer. Whereas the Pilot Project requires an issuer's public float to be calculated using a single closing price on any day during the prior 60-day period, the Proposed Amendments require using the 20-day simple average closing price of the issuer's securities to calculate its qualifying public equity (which must be within 60 days of the date of filing the WKSI base shelf prospectus).
- Annual Confirmation Requirement: WKSIs would be required to reassess their qualification on an annual basis and would be subject to an annual confirmation requirement. If an issuer failed to meet the eligibility criteria on reassessment, it would be required to withdraw its WKSI base shelf prospectus and publicly announce that it will not be able to issue securities under that prospectus. This annual confirmation, which is not contemplated by the Pilot Project, is modelled after the annual reassessment requirement under the regime in the United States.
- Automatic Receipt: The Proposed Amendments remove the requirement for securities regulators to issue a receipt before a WKSI base shelf prospectus becomes effective. Receipt is "deemed" to have been issued by the applicable securities regulators upon filing of a WKSI base shelf prospectus which becomes effective immediately upon filing. This mechanism provides enhanced certainty with respect to transaction timing.
- Receipt Effectiveness: Issuers who qualify as WKSIs would only be required to file a final base shelf prospectus which would generally be deemed to be effective for a period of 37 months, compared to the typical 25-month period contemplated by NI 44-102.
- Seasoning Period: The Proposed Amendments increase the required seasoning period from one year to three years.
Key Takeaways
The Proposed Amendments would provide a more efficient way for mature well-established companies that meet certain conditions to raise capital and issue securities without being subject to regulatory reviews. The new regime provides transaction certainty for issuers as prospectus receipts are deemed to be automatically issued and aims to reduce unnecessary regulatory burdens for well-known reporting issuers with a strong market presence, complete continuous disclosure records and sufficient public equity by permitting WKSIs to avoid filing a preliminary base shelf prospectus. The CSA has noted that adopting a WKSI program that aligns with the corresponding regime in the United Stated will better facilitate cross-border offerings.
Bennett Jones