Canada: The Prescribed Information Memorandum Requirements For Short-Term Securitized Products: The Devil Is In The Details

In previous blog entries, we introduced the CSA's proposed information memoranda requirements that are part of the recent securitization proposals. As noted previously, a condition of the securitized product exemptions (permitting prospectus and registration exempt issuance to eligible securitized product investors) is the delivery of an information memorandum to the purchaser at the same time or before the purchase of the securitized instrument. The CSA proposals differentiate between short-term and longer term securitized products. This blog entry will focus on short-term securitized products only.

Unlike the disclosure requirements for products of greater than one year in duration, the CSA provides prescribed form requirements for short-term securitized products, which terms are contained in proposed Form 45-106F7 and, according to the CSA, were developed following a review of existing ABCP information memoranda, the information the Bank of Canada expects when reviewing whether to accept ABCP issued by an ABCP program as eligible collateral for its standing liquidity facility and comment letters from market participants as part of the October 2008 ABCP Concept Proposals. We would urge ABCP conduit sponsors and administrators in particular to consider the following requirements and read the provisions of proposed Form 45-106F7 carefully. We believe that the information memorandum requirements for short term securitized products require in many cases substantially more disclosure than what ABCP conduits currently provide to their investors and these requirements may raise considerable practical and operational challenges for ABCP conduit sponsors and administrators (among others).

Proposed Form 45-106F7 requires identification of each significant party involved in the securitization, namely parties with a significant role in structuring the securitization transaction, the creditworthiness and liquidity of the program, the selection, acquisition, analysis and management of the assets, the distribution of the securitized products and the payment to securitized product holders and requires details in respect of the role and function of such significant party and description of its experience with respect to substantially similar assets. For sponsors, liquidity providers and providers of material program credit enhancement, additional information is required. Where any such significant party is retaining a tranche or portion of a tranche of the issuance, the description of the tranche interest so retained is to be disclosed.

The disclosure must include diagrams setting out the structure of the securitization under the securitization program and simplified diagrams as to the cash flows of the securitization program.

The form requirements include (among other things) a detailed description of the program including a description of the investment guidelines applied to the pool assets, the amount and nature of liquidity support, the amount and nature of program-wide credit enhancement and any other protections afforded to securitized product holders.

In addition, a summary of the pool assets is required. For each series of short-term securitized product to be distributed, the IM is required to disclose the range of asset types that may be included in the pool, the manner in which the issuer will gain access to underlying asset exposure and the due diligence or verification procedures that have been or will be applied in respect of the pool assets. Disclosure is required as to whether any of the pool assets include CDOs or similar obligations, credit default swaps and other credit derivatives, synthetic assets or derivatives or sub-prime assets. If the pool assets include any of the foregoing, enhanced disclosure is required including a description of those assets and the process for obtaining those assets.

The IM will need to describe the short-term securitized product, its distribution and offering including the material terms thereof as well as the flow of funds for the securitization program including payment allocations, payment dates and payment priorities and, vis a vis certain assets, the ranking of the securitization program in priority of payments if it would reasonably be required by a prospective purchaser to make an informed investment decision.

The disclosure document must describe conflicts of interest that exist or may be reasonably anticipated between or among significant parties and a securitized product holder, all fees and expenses to be paid or payable out of the cash flows from the pool assets and the identity of the parties receiving those fees or expenses. This could be problematic to the extent that it means disclosing confidential arrangements or proprietary business terms. In order of significance, the document will need to disclose risk factors to enable the prospective purchaser to make an informed investment decision with respect to the short-term product including credit and liquidity risks, legal risks that may exist (such as true sale and bankruptcy remoteness issues and other claims or contingent claims on the pool assets) and tax risks, among others. The CSA provides only an indicative list of the types of risk factors that should be included. Each issuer preparing an IM will need to consider the distinct risk factors applicable to its own program.

The issuer will need to describe the material terms of the existing program documents and transaction agreements. This may prove to be a challenge. If the information memorandum is to be distributed on or before each purchase and the conduit is a multi-seller, multi-asset ABCP conduit intended to acquire a diverse range of asset interests and to finance and refinance those assets over time with short term instruments, one can expect new transaction-specific or asset-specific agreements to be entered into with some frequency. The ABCP conduit issuer will need to regularly revisit the IM disclosure as a consequence. We'll revisit this issue in further detail later in this blog entry.

The other prescribed terms (in addition to those terms of general application to short or longer term products) include description of financial leverage and the credit rating of securitized product. Each memorandum (whether for short-term issuances or otherwise) must provide a description of the statutory or contractual rights of action or misrepresentation in favour of the purchaser, the resale restrictions that apply and include certifications from the issuer's CEO or CFO (or equivalent), promoter and sponsor as well a signed certificate from each underwriter. While the foregoing summarizes the salient aspects of some of the important prescribed terms, this blog entry doesn't identify every single disclosure term.

I'd like to share some further observations on the foregoing form requirements. After having completed a survey of a selection of ABCP conduit information memoranda, I believe the proposed form requirements will mean that for many ABCP conduit sponsors or administrators the current information memoranda in use will prove to be deficient after the proposed rules come into effect for ABCP conduit information memoranda. By and large, most current ABCP conduit information memoranda describe in general terms and broad language the aspects of the program that existed at the program inception and were not anticipated at the initial preparation of the IM to be reasonably capable of change or at least were described in a manner that such disclosure would remain correct after the passage of time and in particular after the introduction of new assets and originators into the securitization program. I don't think this manner and approach to IM disclosure will continue to suffice.

I believe that it will no longer be the case that an ABCP conduit administrator will be able to create a series specific IM on the initial creation and issuance of a series of notes and only revise or revisit the IM when there are material amendments to the terms and attributes of the series. The requirement to describe pool assets and transaction terms in particular will require frequent reconsideration of the IM requirements. This means that ABCP conduit sponsors will potentially need to revisit their IMs and enhance the disclosure whenever new deals are originated and transaction documents are finalized and will need to report on related performance of such assets. In addition to the time and expense that may be so associated, the question that I have is whether the requirements imposed by the prescribed terms can practically be achieved.

In the context of short-term securitized product conduits (such as ABCP conduits), I presume that the ABCP conduit is issuing instruments of varying maturities and refinancing or rolling those notes regularly, perhaps as frequently as daily. Given this presumed frequency of issuance and purchase of securitized instruments, is the obligation to deliver an IM (in prescribed from and containing no misrepresentation) to each ABCP purchaser at or before the time of purchase intended to be interpreted such that the ABCP distribution desk of a sponsor of an ABCP conduit is required to issue an IM to a purchaser of the ABCP on any day that a purchaser purchases including the rolling, renewal or refinancing of previously issued and created CP (ie. on the initial creation and each roll date thereafter). If this is the intention, it will mean each ABCP trader and the associated ABCP conduit administrator will need to confirm that the IM contains no misrepresentation and satisfies the prescribed terms as often as daily. This will then mean that from an operational and practical perspective the ABCP conduit is being asked to maintain current product disclosure virtually at all times – an administrative exercise that places the issuers of short-term securitized product (such as ABCP conduits) in Canada in an arena all by themselves. As it has with the continuous disclosure regime proposed for exempt purchases of securitized products, the CSA has imposed disclosure obligations on the short-term securitized product market that do not exist in any other exempt debt or equity market in Canada.

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
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

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