Canada: The Equity Line of Credit: A Financing Tool That is Gaining Ground in Canada

Last Updated: November 4 2010
Article by Frédéric Boucher and Caitlin Rose

Financial markets are still feeling the impact of the recent financial crisis. A public company's survival is often linked to its ability to obtain additional equity financing – an option which has been limited for many due to the financial crisis. More and more public biotech and mining companies in Canada have recently been turning to equity line of credit facilities as a means of securing their position through these difficult times.

What is an ELOC?

The equity line of credit facility, or ELOC, (also known as a standby equity distribution agreement, or SEDA or as an equity line facility agreement, or ELF) has been used in US financial markets in the past, but it is relatively new in Canada. The ELOC is a financing vehicle that is easy to implement, can be set up in advance, and provides the company with a degree of certainty regarding future cash flow.

The ELOC is entered into between the public company and an institutional purchaser (often, a US investor via an offshore entity in order to avoid being subject to certain US securities laws), whereby the purchaser commits to purchase up to a pre-established dollar amount of the company's shares in a series of "draw downs", at the option of the issuer. The purchaser is committed for a fixed period (usually 2-3 years) to buy the securities, whereas the company has the ability, but not the obligation, to sell the shares during this period.

If and when the company elects to draw down under the facility, it sends a notice to the purchaser. The purchaser then has a fixed period of time (usually 5-10 days) to sell the shares in the market. The price of the shares to be purchased pursuant to the ELOC is determined by taking the market price of the shares during the draw down period, less the applicable discount agreed upon between the purchaser and the company, and it is usually subject to a minimum price below which price no shares may be sold. At the end of the pricing period, the company issues the shares to the purchaser and the purchaser pays the issue price to the company. This process may be repeated during the term of the ELOC as often as the company deems appropriate until the amount under the facility is exhausted.

Principal Steps in an ELOC Financing

The process involves the following principal steps:

  • Obtaining certain essential regulatory exemptions (see Certain Material Regulatory Considerations below);
  • Execution of ELOC;
  • Filing of prospectus (usually a base shelf prospectus which qualifies securities to be issued in accordance with ELOC but can also serve to qualify other distributions over a 25-month period);
  • Issuance by the issuer, at its sole discretion, of a draw down notice indicating the aggregate price of the draw down and the minimum (or floor) price per security, if any, and filing of a press release announcing its issuance;
  • Pricing period (usually 5 to 10 days) whereby the purchaser seeks to sell the securities on the open market;
  • Filing of a prospectus supplement qualifying such securities and outlining the terms of the draw down in question, in addition to a press release announcing the details of the settlement; and
  • Issuance of the securities and payment.

Certain Material Regulatory Considerations

  • Exemption from Prospectus Delivery Requirement: in the context of the ELOC, prospectus delivery requirements are not workable as purchasers who purchase from the purchaser through dealers engaged by the purchaser through the relevant exchange are not readily identifiable, and orders for securities made under the prospectus may be combined with other orders. As such, a formal request for exemption from this requirement must be made to the applicable securities regulatory authorities. As a result of such exemption, the issuer must also request exemption from the required disclosure relating to delivery requirements, withdrawal and rescission rights. Consequently, specific language may be imposed in the prospectus and any prospectus supplements.
  • Exemption from Registration: in Canada, most purchasers who have been willing to execute an ELOC (to date) have not been registered dealers for Canadian securities law purposes. As such, a formal request for exemption from this requirement must be made to the applicable securities regulatory authorities.
  • Restrictions on Short Sales: Canadian securities regulatory authorities are particularly sensitive to activities that could be perceived as "short selling" in the context of an ELOC. The standard pricing period acceptable to the TSX is T+3 days. Where pricing periods are longer, as is the case for any draw down pricing period, certain additional requirements will likely be imposed on the purchaser by the authorities.
  • Pre-clearance of Prospectus Supplements: although prospectus supplements under base shelf prospectuses are not subject to review by regulatory authorities, such authorities usually require that a draft of any prospectus supplement to be filed in connection with an ELOC be provided for comments and pre-cleared at least three business days prior to filing.
  • Regulatory Ownership Limitations: in past transactions involving an ELOC, the Canadian securities regulatory authorities and the TSX have imposed certain limitations on the number of securities that may be distributed pursuant to the ELOC, namely:
    • No distribution under an ELOC may at any time cause the issuer to issue securities in amount that exceeds 19.9% of the number of securities issued and outstanding without first obtaining securityholder approval;
    • No distribution under the ELOC may at any time cause the purchaser to own in excess of 9.9% of the aggregate issued and outstanding share capital; and
    • No distribution under the ELOC may, in any 12-month period, exceed 10% of the aggregate issued and outstanding share capital of the issuer.
  • Underwriter Certificate: the purchaser will be an underwriter for those prospectus supplements filed pursuant to the ELOC and will be required to sign an underwriter certificate.

Is the ELOC Right for Your Company?

A company considering an ELOC should be aware of certain inconveniences associated with the facility, and carefully consider these points prior to committing to its implementation.

  • Establishing an ELOC can be a lengthy and expensive process. Given the regulatory exemptions required and the special attention given to such facilities by the Canadian regulators and the TSX, obtaining the necessary clearance can take time. Considerable communications with the Canadian regulators should be anticipated; and the constantly evolving treatment on how to regulate such facilities makes it such that relying on a recent precedent does not necessarily expedite the process.
  • Drawing down under the facility may have a negative impact on share price. A substantial number of shares of the company are sold at a discount pursuant to an ELOC. Existing shareholders therefore experience dilution in the context of a draw down, and the sale of the shares may have an adverse effect on share price. Any downward pressure on share price could encourage short sales by third parties, which could further contribute to any decline in share price.

The ELOC can nevertheless be an attractive option to those public companies (particularly in the biotech and mining spheres) looking for alternative financing solutions. The main advantage of an ELOC is that the company maintains control of timing, given that the company has the right, but not the obligation, to draw down and sell its shares at any time, whereas the purchaser has the obligation to buy the shares whatever the circumstances. Once established, the ELOC can provide the extra level of comfort a company is looking for in order to flourish in today's harsh economic reality.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.