The CSA yesterday released proposed two sets of amendments to National Instrument 45-106 Prospectus and Registration Exemptions that would introduce a bifurcated approach to how they will treat asset-backed commercial paper (ABCP) as opposed to commercial paper (CP).
With respect to CP, the proposed amendments would remove the current "split rating condition" that requires CP to have a designated rating at or above the designated ratings thresholds, and if a second rating is obtained, require that it not be below any of the same designated rating thresholds. Instead, a "modified split rating condition" is proposed that would require that CP not having any rating below a different (and generally lower) set of designated rating thresholds. Among other things, this is intended to remove the disincentive for issuers of commercial paper to seek additional ratings. According to the CSA, the modified condition would also provide for consistent treatment of commercial paper issuers with similar credit risk and maintain the current credit quality of commercial paper distributed under the exemption.
Meanwhile, the CSA announced that since securitization activity in Canada, with the exception of non-bank ABCP, does not raise systemic risk or investor protection concerns, they do not intend to proceed with their 2011 proposals to introduce a new framework for the regulation of securitized products. However, more targeted amendments focusing on short-term securitized products were included as part of the proposal released yesterday. (For more comprehensive commentary on the various aspects of the earlier proposals, see our Canadian Structured Finance Law blog posts from 2011)
Specifically, the CSA proposal would exclude short-term securitized products from being distributed under the short-term debt exemption (discussed above), as well as the private issuer, friends and family, founders, and OM prospectus exemptions. However, a new prospectus exemption for short-term securitized products would be introduced that would only be available to ABCP backed by conventional or traditional assets. The proposed exemption would also be subject to the satisfaction of a number of new conditions, including the requirement to have ratings from at least two designated rating organizations and prescribed liquidity support and asset pool requirements. In addition, the conduit would be required to prepare an information memorandum in a prescribed form to be made available to investors prior to the investor purchasing the short-term securitized product and would be subject to certain other timely and ongoing disclosure obligations.
Comments on the proposals are being accepted until April 23, 2014.
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