On September 21, 2023, the Canadian Securities Administrators (“CSA”) announced proposed amendments to National Instrument 44-102 Shelf Distributions (“NI 44-102”) relating to well-known seasoned issuers ("WKSIs")as well as consequential amendments to other rules and policies that would formalize and modify in certain respects the previously introduced expedited shelf prospectus regime for WKSIs in Canada (the “Proposed Amendments”). The Proposed Amendments have been published for a 90-day comment period, which expires on December 20, 2023.
Background
The CSA received feedback from market participants that certain base shelf prospectus requirements create unnecessary regulatory burdens for large, established issuers that have a strong market following and a complete public disclosure record. Stakeholders recommended that the CSA implement a Canadian version of the WKSI regime that exists in the United States to assist certain issuers with raising capital on a more expedited basis.
As we discussed in a previous post, in December 2021, members of the CSA issued local blanket orders that provide temporary exemptions from certain base shelf prospectus requirements for qualifying WKSIs (the “Blanket Orders”). The Blanket Orders allow 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.
Since January 2022, the CSA have reviewed the use of the Blanket Orders and considered feedback from stakeholders in order to determine how to implement a more permanent Canadian WKSI regime through amendments to the rules. The CSA considered replicating the provisions set out in the Blanket Orders but believe that the Proposed Amendments are more responsive to stakeholder feedback and would increase market efficiency to a greater extent. While the Blanket Orders remain in effect, they would be replaced by the Proposed Amendments, if adopted.
The Proposed Amendments
Under the Proposed Amendments, an issuer will be eligible to take advantage of the WKSI regime if it is not an investment fund and is and has been a reporting issuer in a jurisdiction of Canada for the preceding three years (such proposed seasoning period being significantly longer than the 12-month period under the Blanket Orders), it is eligible to file a short form prospectus and it has either: (i) qualifying public equity of at least C$500,000,000; or (ii) qualifying public debt of at least C$1,000,000,000.
The Proposed Amendments would permit issuers that satisfy the qualification criteria 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 (at least generally) any regulatory review;
- omit certain disclosure from the base shelf prospectus, including the aggregate dollar amount of securities that may be raised; 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.
The CSA believe that the Proposed Amendments will provide more certainty regarding transaction timing and facilitate cross-border offerings, as the timing of filings in Canada and the United States will become more aligned.
The United States WKSI regime provides eligible issuers with a high degree of control over when their base shelf prospectus is made effective with the Securities and Exchange Commission and publicly available on EDGAR. Typically, such issuers would file their base shelf prospectus and a corresponding prospectus supplement after markets close in connection with the launch of a transaction, effectively giving such issuers immediate access to the market. That level of control over timing allows such issuers to avoid inadvertently alerting the market to a potential transaction prior to launch.
By contrast, while the Blanket Orders significantly reduced the timing delays associated with filing a base shelf prospectus, they did not provide a similar degree of control over when a base shelf prospectus would be receipted and made public. While Canadian regulators have historically been receptive to eligible issuers’ pre-filing requests to provide prospectus receipts at or around a specified time in an effort to better align Canadian WKSI filing procedures with those in the United States, the risks of misalignment in the context of the launch of an underwritten cross-border offering remained a material concern for many market participants. We believe that the control over timing resulting from the deemed receipt included in the Proposed Amendments is responsive to stakeholder feedback and significantly reduces existing concerns for eligible issuers seeking to coordinate the launch of a cross-border marketed offering using the WKSI procedures.
Differences between the Blanket Orders and the Proposed Amendments
Although the Proposed Amendments largely follow the Blanket Orders, there are certain differences between the Blanket Orders and the Proposed Amendments, which include:
Some jurisdictions, including Ontario, are also contemplating amendments to local laws to allow for the automatic receipt mechanism contemplated by the Proposed Amendments.
