Canada: SEC Proposes To Eliminate MJDS Form F-9 And Short-Form U.S. Registration Statement Eligibility Based On Credit Ratings

On February 9, 2011, the U.S. Securities and Exchange Commission (SEC) issued a proposal to eliminate Form F-9, the registration statement form that currently allows certain eligible Canadian issuers to register investment grade debt or investment grade preferred securities1 under the U.S. Securities Act of 1933 (the U.S. Securities Act) using the U.S.-Canada Multi-jurisdictional Disclosure System (MJDS).2 Although most issuers currently eligible to use Form F-9 will be able to use Form F-10 to continue to register their securities under MJDS instead, there are certain eligibility requirements for use of Form F-10 that some issuers may not be able to meet. As a result, if the proposal is adopted, these issuers will be precluded from being able to use MJDS forms for their investment grade securities offerings or for their annual reports required to be filed with the SEC. The SEC is also proposing to revise the eligibility criteria for use of short-form registration statement Forms S-3 and F-3 so that they no longer provide an alternative eligibility test based on securities ratings. As a result, issuers who do not meet the other eligibility requirements for use of those forms for primary offerings, and who do not meet a new alternative eligibility requirement being proposed by the SEC, will no longer be able to use Forms S-3 or F-3 to register primary offerings of non-convertible investment-grade securities for cash.

These changes are being proposed in connection with the implementation of the provisions of Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the SEC to remove references to or requirements relying on credit ratings in its regulations and to substitute alternative standards of credit-worthiness.

SEC's Rationale for Eliminating Form F-9

Currently, the investment grade requirement for Form F-9 is met if a security has been rated investment grade by at least one nationally recognized statistical rating organization (NRSRO).3 Under Form F-9, an eligible issuer is able to register investment grade securities using audited financial statements prepared pursuant to Canadian generally accepted accounting principles (GAAP) without having to include a U.S. GAAP reconciliation in the Form F-9 registration statement or in subsequent annual reports filed on Form 40-F, which is the MJDS annual report form. This feature has historically represented a material difference from MJDS Form F-104, which requires a U.S. GAAP reconciliation in accordance with Item 18 of Form 20-F for the Form F-10 registration statement itself, and a reconciliation either in accordance with Item 17 or Item 18 of Form 20-F in subsequently filed annual reports on Form 40-F. Under current SEC rules however, foreign private issuers preparing their financial statements in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board are no longer required to prepare a U.S. GAAP reconciliation. As CSA rules now require most Canadian reporting companies to prepare their financial statements pursuant to IFRS beginning in 20115, the SEC stated in its proposal that it no longer believes that keeping Form F-9 as a distinct form would serve a useful purpose. Specifically, because Canadian issuers will not have to perform a U.S. GAAP reconciliation under IFRS, the SEC concluded that Form F-9 has become dispensable as the primary difference between F-9 and Form F-10 will be eliminated. The SEC also cites the infrequent use of Form F-9 as a reason why it is no longer needed.

Despite the SEC's conclusion that Form F-9 has become dispensable because of the transition to IFRS reporting by Canadian issuers, there are other important differences remaining between Form F-9 and Form F-10 that do not relate to U.S. GAAP reconciliation requirements. For example, in order to use Form F-10, an issuer must have a public float of equity securities of at least US$75 million (excluding preferred securities), unless the securities being issued are guaranteed by a parent meeting this public float requirement. In addition, Form F-10 prohibits the registration of derivative securities (other than certain warrants, options, rights and convertible securities).

The SEC also proposes to eliminate all references to Form F-9 in its rules and forms, including the references to Form F-9 in Form 40-F, the MJDS form used for annual reports. As a result, a Canadian company that currently has a reporting obligation under the U.S. Securities Exchange Act of 1934 (the Exchange Act) solely with respect to investment grade securities registered on Form F-9, and which does not meet the US$75 million public float eligibility requirement of Form 40-F, would be required to file annual reports on Form 20-F despite previously having been eligible to file annual reports on Form 40-F.6 The requirement to file an annual report using Form 20-F would result in a significant change for affected companies because such issuers would no longer be able to rely primarily on their Canadian disclosure documents when meeting their annual Exchange Act reporting obligations.7 In its proposal, the SEC does not describe a policy reason for requiring affected Canadian issuers to make this switch to Form 20-F reporting.

Form S-3 and Form F-3 Eligibility

Forms S-3 and F-3 are the "short form" registration statements used by eligible issuers to register securities offerings under the U.S. Securities Act. These forms allow eligible issuers to rely on reports they have filed under the Exchange Act, and will file under the Exchange Act in the future, to satisfy many of their disclosure requirements under the U.S. Securities Act through incorporation by reference.

To be eligible to use Forms S-3 or F-3 an issuer must meet the relevant form's eligibility requirements, which generally requires having a reporting history under the Exchange Act, and also meeting at least one of the form's transaction requirements. One such transaction requirement permits registrants to register primary offerings of non-convertible securities if they are rated investment grade by at least one NRSRO, even if the issuer does not meet the requirement to have a public float of at least US$75 million, which is generally necessary for primary offering registrations on those forms (other than limited primary offerings by U.S. listed issuers not exceeding one-third of the market value of the issuer's public float in any 12 month period). The SEC is proposing to replace this investment grade rating eligibility criteria with transaction criteria based on the issuer having issued at least US$1 billion of non-convertible securities in transactions registered under the U.S. Securities Act, other than equity securities, for cash during the past three years (as measured from a date within 60 days of the filing of the registration statement) and satisfying the other relevant requirements of Form S-3 or F-3. This criteria is similar to the method used by the SEC for determining an issuer's status as a "well-known seasoned issuer," or WKSI8, for the purposes of registering debt securities if the issuer does not meet the US$700 million public float requirement necessary for registering equity securities. The SEC anticipates that the proposed change will result in some high-yield debt issuers that are not currently eligible to use Form S-3 or F-3 becoming eligible. Also, some issuers currently eligible to use Form S-3 or F-3 may lose their eligibility.

Changes to eliminate references to credit ratings and ratings reliance are also being made to certain other SEC forms and rules. The SEC has requested comments by March 28, 2011 on whether or how its proposals should be implemented. We would be pleased to discuss any aspects of the proposed rules and any comments you may be considering making to the SEC.

This publication is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Recipients of this publication are advised to seek specific legal advice by contacting members of Osler regarding any specific legal issues. The information in this publication is current as of its original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose. Receipt of or use of this publication does not create a lawyer-client relationship.

Footnotes

1. Securities registered on Form F-9 must either be non-convertible or not convertible for a period of at least one year from the date of issuance and thereafter generally may only be convertible into a security of another class of the same issuer.

2. MJDS is a reciprocal initiative adopted by the SEC and the CSA designed to facilitate cross-border public offerings of securities by allowing issuers to meet their disclosure obligations in both Canada and the United States by complying with the issuer's home country disclosure standards, and permitting the review of that disclosure solely by the securities regulator in the issuer's home country.

3. Form F-9 also refers to, and permits the use of a rating by, an "Approved Rating Organization", as defined in National Policy Statement No. 45 of the CSA. That National Policy Statement has been replaced by National Instrument 71-101 of the CSA, although the term "Approved Rating Organization" is currently defined for the purposes of Canadian securities laws in National Instrument 51-102 of the CSA. It should be noted that in proposed National Instrument 25-101, the CSA has published for comment a proposal that would replace the concept of an "Approved Rating Organization" with the concept of a "Designated Rating Organization" meeting certain requirements. In practice, however, the reference to a Canadian "Approved Rating Organization" in Form F-9 is no longer significant, as the Canadian rating agencies currently falling within that definition generally also qualify as NRSROs.

4. Form F-10 can be used by eligible Canadian issuers to register any kind of security, including common shares, debt and preferred shares, except a derivative security (other than certain warrants, options, rights and convertible securities). Among the eligibility criteria for the use of Form F-10 is the requirement for the Canadian issuer to have a public float of its outstanding equity securities (other than preferred shares) of at least US$75 million.

5. Certain issuers in rate-regulated industries have been permitted to delay their transition to IFRS until 2012.

6. It also appears that reporting on Form 20-F will be required for a registrant that has registered securities guaranteed by its parent using Form F-10, relying on the parent guarantor's public float rather than its own public float, as permitted by Form F-10.

7. Form 40-F is primarily comprised of the Canadian issuer's annual information form, audited annual financial statements and management's discussion of financial condition and results of operations.

8. In determining compliance with the proposed US$1 billion threshold, the SEC would use the same standards that are used in determining whether an issuer is eligible to register debt securities as a WKSI: (i) issuers would be permitted to aggregate the amount of non-convertible securities, other than common equity, issued in registered primary offerings during the prior three years; (ii) issuers would be permitted to include only such non-convertible securities that were issued in registered primary offerings for cash – they would not be permitted to include registered exchange offers; and (iii) parent company issuers only would be permitted to include in their calculation the principal amount of their full and unconditional guarantees, within the meaning of Rule 3-10 of Regulation S-X, of non-convertible securities, other than common equity, of their majority-owned subsidiaries issued in registered primary offerings for cash during the three-year period.

Jason Comerford's primary emphasis is on assisting Canadian and U.S. clients with U.S. corporate finance and mergers and acquisitions transactions.Kevin Cramer practices U.S. mergers & acquisitions and securities law. Rob Lando is a cross-border corporate and securities lawyer with significant practice experience in the United States and Canada. Jim Lurie practice covers corporate financing, M&A and U.S. securities law matters for U.S., Canadian and other foreign clients.

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 Mondaq.com.

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

Authors
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions