Exemptive relief for shelf prospectus distributions by large seasoned Issuers

Introduction 

Effective January 4, 2022, qualifying well-known seasoned issuers (WKSIs) will be able to access the capital markets more quickly and flexibly. The Canadian Securities Administrators (the CSA) have recently published temporary exemptions from certain base shelf prospectus requirements for WKSIs. The exemptions are being effected by substantially similar blanket orders, instruments or decisions for each province and territory in Canada (collectively, the Blanket Orders). The Blanket Orders are accompanied by the CSA-issued Staff Notice 44-306 Blanket Orders Exempting Well-Known Seasoned Issuers from Certain Prospectus Requirements (the Staff Notice). Blanket Orders will reduce the regulatory burden for well-known reporting issuers that have a strong following, a complete continuous disclosure record and a sufficient public float.

The Blanket Orders further facilitate WKSIs’ ability to react quickly to market conditions when distributing securities using the shelf distribution rules. The shelf distribution rules by securities regulatory authorities allow an eligible issuer to raise funds within 25 months of the receipt for a final base shelf prospectus by filing a prospectus supplement qualifying a tranche of the securities. Issuers must comply with both the shelf distribution and short form prospectus rules of Canadian securities legislation.

The Blanket Orders are intended to remain in place for up to 18 months to allow permanent rule changes to be assessed and, if appropriate, made. Some of the Blanket Orders, including the orders in Alberta and Ontario, include a clause providing that the exemptions will expire on the earlier of July 4, 2023, unless extended, and the effective date of the amendments to National Instrument 44-102 Shelf Distributions (NI 44-102) that address the same subject matter as the Blanket Orders.

The exemptive relief 

If they are able to rely on the exemptive relief, WKSIs will be exempt from the requirement to file and obtain a receipt for a preliminary base shelf prospectus under NI 44-102. A receipted final base shelf prospectus will become the first public step in the shelf distribution system. Receipts are expected to be issued the same business day if the final base shelf prospectus is filed before noon in the relevant jurisdiction(s). A prospectus filed after noon will be receipted before noon on the next business day. A preliminary base shelf prospectus will not be filed or reviewed by the securities regulators, thereby significantly reducing the time frame for WKSIs who wish to offer securities. 

WKSIs will be allowed to issue an unlimited dollar value of securities under the final base shelf prospectus and will not need to set out the aggregate dollar amount of securities that issuers reasonably expect to distribute under the prospectus, as currently required.  In addition, there is no need to set out the number of securities that may be issued under the prospectus. As a result, issuers will have more flexibility and will not have to file an amended or new base shelf prospectus as they would have previously when the fixed value of securities qualified had been reached.

The Blanket Orders further exempt WKSIs from including the following disclosure in their base shelf prospectus required under Form 44-101F1 Short Form Prospectus:

• the number of securities qualified under the base shelf prospectus;
• a plan of distribution, although the issuer must indicate that a plan of distribution will be described in any supplement used to draw down funds under the shelf prospectus;
• the securities being offered, other than as necessary to identify the types of securities being qualified; and
• a description of the selling shareholder(s).

An issuer must make certain disclosures in the prospectus as to its status as a WKSI and that it is relying on the exemption. A letter of an executive officer or director of the issuer must accompany the filing of the prospectus and be dated the same date as the base shelf prospectus. The letter must confirm the issuer’s reliance on the exemption, the particulars of its WKSI status and the date of determination. Personal information forms will need to be filed with the base shelf prospectus, if required.

What is a WKSI?

In order to rely on the exemptive relief, an issuer must qualify as a WKSI. A WKSI is an issuer that has either:

• outstanding listed equity securities that have a public float of at least of CDN $500 million; or
• at least CDN$ 1 billion of non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash in the last three years.

Additional conditions of the exemptive relief

In order to rely on the relief, the following conditions must be met:

• the issuer is a WKSI as of a date within 60 days preceding the date the issuer files the base shelf prospectus;
• the issuer is, and has been, a reporting issuer in at least one Canadian jurisdiction for at least 12 months;
• the issuer is eligible to file a short form prospectus under National Instrument 44-101 Short Form Prospectus Distributions and has satisfied the qualification requirements of the instrument or filed the necessary ten business day notice requirement under the instrument.
• the issuer is not an “ineligible issuer.” An ineligible issuer is an issuer to which any of the following apply:
  • has not filed with the securities regulator or securities regulatory authority in each jurisdiction in which it is a reporting issuer all periodic and timely disclosure documents that it is required to have filed in that jurisdiction;
  • is or, in the past three years the issuer or any of its predecessors was, (i) an issuer whose operations have ceased; or (ii) an issuer whose principal asset is cash, cash equivalents, or its exchange listing, including a capital pool company, a special purpose acquisition company, or a growth acquisition corporation or any similar entity;
  • that has in the past three years become bankrupt, made a proposal under any bankruptcy or insolvency legislation or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets;
  • that was, or any entity that at the time was a subsidiary of the issuer that was, the subject of any penalties or sanctions, including restrictions on the use by the issuer of any type of prospectus, or exemption, imposed by a court relating to securities legislation or by a securities regulatory authority within the past three years;
  • that has been the subject of any cease trade order in any Canadian jurisdiction or any suspension of trading under section 12(k) of the Securities Exchange Act of 1934 within the past three years; and
  • the issuer is not an investment fund or an issuer with outstanding asset-backed securities or that seeks to qualify the distribution of asset-backed securities under the short form prospectus.  
• issuers with mining operations must satisfy additional financial tests. They must have gross revenue derived from mining operations of at least CDN $55 million for the most recently completed financial year and gross revenue derived from mining operations of at least CDN$165 million in the aggregate for the three most recently completed financial years. The issuer must also file any technical reports required under National Instrument 43-101 Standards for Disclosure for Mineral Projects. The letter of the executive officer or director of an issuer described above will, in the case of an issuer with mining operations, confirm it has the necessary revenues to rely on the relief.

Dual listed issuers 

The Blanket Orders will be of interest to dual listed issuers, as they go a step towards harmonizing Canada with the US shelf registration system for US. WKSIs, a system that includes similar accommodations. Canadian requirements require that the final base shelf prospectus be receipted and not automatically approved.  

Transition

The WKSI pilot project is part of the CSA’s initiative to reduce the regulatory burden for issuers reflected in its Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers. The exemption for WKSIs was also recommended by the Capital Markets Modernization Task Force established by the Government of Ontario in its Final Report.

It is anticipated the Blanket Orders will be in effect for up to 18 months. In some jurisdictions, for e.g. British Columbia and Quebec, there is no expiry date. In other jurisdictions, as set out above, the Blanket Orders provide for their termination at the earlier of 18 months or rules on the subject being published.

The CSA will use this time to determine if these procedures should be adopted through rule amendments and how best to adopt these procedures. During this time there will be an opportunity to identify appropriate eligibility criteria, public interest and operational concerns.