The Canadian securities regulators have announced amendments that will make “at-the-market” (ATM) programs far more accessible and user-friendly for Canadian issuers.
The ATM capital-raising regime set forth in National Instrument 44-102 – Shelf Distributions
(NI 44-102) currently permits Canadian issuers to file a shelf prospectus and a prospectus supplement under NI 44-102 to create an ATM program. Concurrently with filing the prospectus supplement, the issuer typically enters into an agreement with an agent outlining the terms and conditions under which treasury securities will be issued, through the facilities of a stock exchange, at prevailing market prices under the ATM program. These treasury securities are then issued at the issuer’s discretion throughout the duration of the ATM program (typically 25 months, to align with the maximum offering period under a shelf prospectus).
Notwithstanding the apparent benefits of having this ability to access the capital markets if, as and when needed, the ATM regime remains underutilized in Canada when compared to other financing alternatives. One potential reason for this underutilization is that in order to implement an ATM program, issuers have historically been required to apply for and obtain exemptive relief from the Canadian securities commissions from certain provisions of securities legislation that do not make sense for an ATM program – namely, prospectus delivery requirements, certification obligations and rescission rights. Despite the fact that such exemptive relief was almost routinely granted, the additional time and cost in making such applications may have been a deterrent to many issuers.
However, with the amendments announced by the CSA on June 4, 2020, which will become effective on August 31, 2020, the CSA has removed the need to obtain such exemptive relief, among other things, thus paving the way for issuers to more easily and readily access the ATM regime should they choose to do so.
Overview of the amendments
The CSA has made four key amendments to the ATM regime that will be of primary interest to issuers.
Significantly reduced regulatory and administrative burden
The CSA has eliminated the need for issuers to apply for and obtain exemptive relief in order to launch an ATM program by amending the legislation to “write in” the changes needed for an ATM program. This will remove significant time and cost at the front-end of the establishment of an ATM program. In particular, the CSA has made the following changes to NI 44-102, codifying the exemptive relief that was typically granted for ATM programs:
- Prospectus Delivery – Under an ATM program, the requirement to deliver a prospectus to the purchaser of the security distributed does not apply.
- Withdrawal and Rescission Rights – Under an ATM program, such rights are modified to reflect, among other things, the impact of non-delivery of the ATM prospectus.
- Prospectus Form Changes – The form of prospectus certificate to be signed in connection with a prospectus that establishes an ATM program has been modified to reflect the full, true and plain disclosure of all material facts relating to the securities being offered, as at such times the securities are offered, and to reflect the periodic nature of the distribution of such securities.
Increased flexibility regarding size of distributions under an ATM program
Historically, issuers who implemented an ATM program in Canada were subject to two key limits on their ATM program: (i) the daily limit on the number of securities of a class sold under the ATM program on any given day was limited to 25% of the daily trading volume of securities of the applicable class and (ii) over the entire course of any given ATM program (i.e. typically 25 months), the aggregate distributions under such ATM program were capped at 10% of the market value of the issuer’s securities. From the CSA’s perspective, the rationale for these limits was to try and ensure the ATM program did not materially affect the market price of the issuer’s securities.
The CSA amendments now remove both of these limits. In stating its decision to do so, the CSA stated that this decision was “based on reasonable expectations regarding the conduct of market participants.”. However, the CSA also states that it will remain alert to potential abuses of the ATM program and will focus on ATM distributions that may have had a material impact on the price of the issuer’s securities. Issuers who implement an ATM program will need to remain cognizant of their obligations under securities legislation and stock exchange policies to disclose material facts or material changes to their business, and will need to analyze and consider whether any large distributions under an ATM program meet this standard for their business, thus requiring disclosure.
Less frequent reporting obligations
Currently, issuers who establish an ATM program are required to file a report on SEDAR containing details (number and average price of the securities distributed under the ATM program and the aggregate gross and net proceeds raised and aggregate commissions paid or payable during the relevant period) of the distributions made under the program within seven days after each month in which a distribution occurred.
Once the amendments come into force, issuers will only be obligated to disclose details of ATM distributions in one of two ways: (1) within 60 days of an interim period or 120 days of an annual period in a standalone report; or (2) in their interim and annual financial statements and MD&A.
This welcome change will reduce the administrative burden on issuers as the details can now be folded into their procedures for interim and annual reporting.
Ability to amend the ATM prospectus via a “designated news release”
Under the current regime, if an issuer has an ATM program in place, and, during the course of the ATM program, circumstances occur that constitute a material fact for the issuer’s business, the issuer would be required to file a prospectus supplement or an amended prospectus in order to ensure that the prospectus governing the ATM distributions continues to contain full, true and plain disclosure regarding the securities distributed.
The CSA amendments permit issuers to now issue a “designated news release” disclosing such material fact, which will then be incorporated by reference into the ATM prospectus (provided that the ATM prospectus filed must disclose this approach and contain this “incorporation by reference” language and the news release disseminated clearly states it is a “designated news release” for ATM program purposes). This approach will save the issuer further time and money throughout the duration of the ATM program.
With these amendments, the CSA has made ATM programs far more accessible and user-friendly for Canadian issuers.