On September 21, 2023, the Canadian Securities Administrators (CSA) published for comment proposed amendments to National Instrument 44-102 - Shelf Distributions (NI 44-102) and related consequential amendments to other instruments (Proposed Amendments). The Proposed Amendments seek to permanently establish an expedited base shelf prospectus regime for well-known seasoned issuers (WKSIs) in Canada that has been in effect since January 2022.
Background
In December 2021, members of the CSA implemented local blank orders (Blanket Orders) allowing eligible issuers to file and receive a receipt for a final base shelf prospectus on an accelerated basis without first filing a preliminary base shelf prospectus. Eligible issuers have also been exempt from certain of the disclosure requirements of a base shelf prospectus.
Since the Blanket Orders came into effect, the CSA has continued to review the use of such orders and collect feedback from stakeholders in order to determine how to implement a more permanent WKSI regime. The CSA believes that the Proposed Amendments are responsive to stakeholder feedback.
The Proposed Amendments
Under the Proposed Amendments, an issuer will be eligible to take advantage of the WKSI regime if it:
is and has been a reporting issuer in a jurisdiction of Canada for the preceding three years;
is eligible to file a short form prospectus;
has on at least one day during the 60 days preceding the filing of its base shelf prospectus, had either: (a) at least $500 million of qualifying public equity (i.e., listed securities excluding those held by an affiliate or reporting insider of the issuer); or (b) at least $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);
has no outstanding asset-back securities;
is not an investment fund;
is current with its continuous disclosure requirements;
has not, during the past three years, been: (a) an issuer whose operations have ceased or whose principal asset is cash, cash equivalents or its exchange listing; (b) the subject of bankruptcy proceedings, a cease trade order or certain other regulatory sanctions or settlement agreements with securities regulators.
In addition, issuer with mining operations must have gross revenue derived from mining operations of at least $55 million for the most recently completed financial year and gross revenue derived from mining operations of at least $165 million in the aggregate for the issuer’s three most recently completed financial years.
Issuers that satisfy the qualification criteria would be permitted to:
file a final base shelf prospectus and be deemed to receive a receipt for that prospectus upon filing, without first filing a preliminary base shelf prospectus or undergoing any regulatory review;
omit certain disclosure from the base shelf prospectus (i.e., the aggregate dollar amount of securities that may be raised under the prospectus); and
benefit from a deemed receipt that will be effective for 37 months from the date of its deemed issuance, subject to annual confirmation of continued WKSI eligibility.
Differences between the Proposed Amendments and the Blanket Orders
The WKSI regime contemplated under the Proposed Amendments is substantially similar to the temporary regime implemented by the Blanket Orders. However, there are a number of key differences which are described below.
Eligibility. The Proposed Amendments require issuers to have issued a certain amount of debt in the preceding three years or have $500 million of "qualifying public equity", which excludes securities held by reporting insiders of the issuer. When determining whether an issuer has the required public equity, the Proposed Amendments would require issuers to use 20-day simple average closing price of the issuer’s securities. Under the Blanket Orders, an issuer is required to have a "public float" of $500 million, which excludes securities held by affiliates. In addition, issuers are to use a single closing price from any day during the 60 days preceding the filing of its base shelf prospectus when calculating the public float.
Seasoning Period. The Proposed Amendments require an issuer to have been a reporting issuer for the preceding three years, whereas the Blanket Orders require an issuer to have been a reporting issuer for the preceding 12 months.
Annual Confirmation. The Proposed Amendments require an issuer that has filed a WKSI base shelf prospectus to confirm on an annual basis (either in its annual information form or an amendment to its WKSI base shelf prospectus) that it remains eligible to file a WKSI base shelf prospectus. There are no requirements for an annual confirmation under the Blanket Orders.
Automatic Receipt. The Proposed Amendments deem a receipt in respect of a WKSI base shelf prospectus to have been issued upon the filing of the WKSI base shelf prospectus. The Blanket Orders, despite having eliminated any requirement to file a preliminary prospectus or undergo a regulatory review, still require that a prospectus receipt be issued by an issuer’s principal regulator after the prospectus is filed.
Receipt Effectiveness. The Proposed Amendments provide that a deemed receipt for a WKSI base shelf prospectus will be effective until the earliest of (i) 37 months from the date of the deemed issuance, (ii) the date on which the issuer is required to file its audited annual financial statements, unless the issuer continues to be an eligible WKSI and has complied with the annual confirmation provision, and (iii) certain earlier lapse dates contemplated by NI 44-102. The Blanket Orders are silent on how long a receipt is effective. As such, the default effectiveness of 25 months under NI 44-102 is currently used.
Implications and Next Steps
Implementation of the Proposed Amendments will allow WKSIs to quickly and efficiently to raise capital. In addition, the Proposed Amendments will more closely align the WKSI regimes in Canada in the USA, which is expected to allow issuers that meet the Canadian WKSI eligibility criteria to more efficiently conduct cross-border offerings.
The CSA has asked for the public’s input on the Proposed Amendments. The public comment period will expire on December 20, 2023. Issuers are reminded that the Blanket Orders remain in effect until the Proposed Amendments have been formally adopted by the CSA.
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DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.