On September 21, 2023, the Canadian Securities Administrators (CSA) proposed amendments to National Instrument 44-102 – Shelf Distributions, Companion Policy 44-102CP and National Policy 11-202 – Process for Prospectus Reviews in Multiple Jurisdictions (Proposed Amendments) which, if implemented, would provide an expedited shelf prospectus regime to well-known seasoned issuers (WKSIs).
A WKSI is an issuer that, among other criteria, has either (1) outstanding listed equity securities that have qualifying public equity of CA$500 million or (2) at least CA$1 billion aggregate amount of non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash, not exchange, in the last three years. Under the regime, WKSIs that satisfy the qualification criteria and conditions are exempt from certain base shelf prospectus filing requirements, including the requirement to file a preliminary base shelf prospectus and having such prospectus undergo a regulatory review (WKSI Framework). WKSIs are also permitted to omit certain disclosure from the base shelf prospectus (e.g., aggregate dollar amount of securities that may be raised under the prospectus) and under the Proposed Amendments, will benefit from an automatic prospectus receipt effective for a period of 37 months after its deemed issuance, subject to an annual confirmation. The Proposed Amendments enhance, and make permanent, the temporary local blanket orders (the Temporary Orders) adopted by the Canadian provinces and territories on January 4, 2022.
Background
The WKSI Framework was developed in response to feedback received by the CSA in relation to its Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers andthe Ontario Government's Capital Markets Modernization Taskforce report in January 2021. The policy underpinning the WKSI Framework is that certain large established Canadian public companies have sufficient market following and up-to-date disclosure records that render certain base shelf prospectus requirements unnecessary. A similar regime has existed in the United States since 2005.
To date, the WKSI Framework has been implemented by the Temporary Orders which have been in effect since January 4, 2022, and would be replaced by the Proposed Amendments, if adopted. For a more detailed summary of the Temporary Orders please see our prior insight Well-known seasoned issuers are coming north for the New Year.
Key changes to the WKSI framework
The following table sets forth the key differences between the Temporary Orders and the Proposed Amendments.
| WKSI Framework | Temporary Orders | Proposed Amendments |
|---|---|---|
| WKSI Definition – Seasoning Period | An issuer must be a reporting issuer in one jurisdiction in Canada for the previous 12 months. | An issuer must be a reporting issuer in one jurisdiction in Canada for the previous 36 months. |
| WKSI Definition –Qualifying Public Equity | WKSI is defined as an issuer with outstanding
listed equity securities that have a public float of C$500 million
(the definition of public float that will most commonly apply is
the aggregate market value of the securities of the issuer held by
persons or companies that are not affiliated parties). Price of securities is calculated using the price at which the securities were last sold in the principal market for the securities as of a date within 60 days preceding the WKSI base shelf prospectus. |
The term "public float" is replaced with
"qualifying public equity" and excludes securities held
by affiliates and reporting insiders of the issuer. Price of securities is calculated using a 20-day simple average closing price of the issuer's equity securities, which is more consistent with other rules that refer to market price. |
| Annual Confirmation Requirement | None. | Issuers that have filed a WKSI base shelf prospectus are
required to confirm whether they continue to qualify as a WKSI on
an annual basis by: (1) including a statement confirming its WKSI status in its annual information form (AIF); or (2) filing an amendment to its WKSI base shelf prospectus indicating that it continues to be a WKSI. The confirmation must be completed within 60 days before the date on which the issuer's audited annual financial statements are required to be filed. If an issuer is no longer an eligible WKSI, the issuer must publicly announce that it will not distribute securities under a prospectus supplement to the WKSI base shelf prospectus and withdraw the WKSI base shelf prospectus. |
| Automatic Receipt | Receipt issuance is on an expedited basis, but it is not automatic and could be delayed due to processing delays or if the regulators exercise their discretion to perform a review. | A receipt is deemed to be issued in all jurisdictions in Canada where the prospectus has been filed on the date the WKSI base shelf prospectus is filed. The receipt is effective for a period of 37 months from the date of its deemed issuance (subject to the annual confirmation requirement discussed above). |
| Filing Requirements | An issuer is required to file a "WKSI letter" in place of the preliminary prospectus. | An issuer must file a qualification certificate that meets the requirements of NI 44-101 – Short Form Prospectus Distributions (a Qualification Certificate). The WKSI base shelf prospectus must disclose the issuer's (i) reliance on the WKSI rules; and (ii) qualifying public equity (or debt) that establishes the issuer is a WKSI and the corresponding date. The content in the "WKSI letter" is substantially similar to the Qualification Certificate. |
| Improved Flexibility | No consideration of exemptive relief applications and no discussion of a WKSI base shelf amendment process. | Exemptive relief applications can be considered and there is a procedure for amending a WKSI base shelf prospectus. |
Dentons insight
As of September 30, 2023, only 22 issuers have utilized the WKSI Framework. This relatively low adoption rate may be due to the state of the Canadian capital markets since the adoption of the Temporary Orders and is not necessarily indicative of issuers' appetites for using the WKSI regime. We expect that the improvements to the WKSI Framework under the Proposed Amendments will be particularly attractive for dual-listed issuers and ultimately increase the use of the framework.
The Proposed Amendments enhance the WKSI Framework by providing transaction certainty for issuers – because prospectus receipts are deemed to be automatically issued. This change reduces the regulatory burden for WKSIs as well as certain transaction risks associated with the traditional base shelf prospectus, enabling WKSIs to respond quickly to changing market conditions. For high market-cap companies this means taking advantage of favourable market conditions or narrow market openings.
The lengthening of the seasoning period for issuers to qualify as a WKSI from 12 to 36 months may reduce the number of eligible issuers. This more stringent qualification adds further protections the public by providing investors with a more lengthy period of disclosure documentation and in turn may justify the greater period that a base shelf prospective may stay active (from 25 to 37 months). The Proposed Amendments also contain an annual confirmation requirement, but this does not appear to be an onerous undertaking for any WKSI if simply incorporated to an issuer's AIF.
The Proposed Amendments are currently subject to a 90-day comment period and stakeholders are invited to provide comments in writing on or before December 20, 2023.
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