Capital market conditions in Canada during the first half of 2025 have been characterized by very high levels of market-price volatility. U.S. tariff strategies, valuation concerns in certain sectors, sticky inflation, election uncertainties, and budget deficit alarms have all contributed to the recent volatility. This market-price volatility, combined with general economic uncertainty, has caused a general slowdown in financing activities by companies listed on Canadian stock exchanges. This slowdown comes at a time when many Canadian businesses require additional capital to make investments that may be needed to increase their competitiveness and help them withstand potential supply-chain disruptions and upheaval in long-standing customer relationships in the U.S. marketplace.
In recent months, we have observed that many investors are reluctant to purchase privately placed securities, which trigger a four-month hold period – an interval that can feel unbearably long in the current economic environment. Accordingly, we applaud the recent decision by the Canadian Securities Administrators (the "CSA") to amend the rules related to an important prospectus exemption in order to address this issue and facilitate greater financing opportunities.
On May 14, 2025, the CSA announced a temporary increase to the capital-raising limit of the listed issuer financing exemption (the "LIFE Exemption") under Part 5A of National Instrument 45-106 – Prospectus Exemptions. This relief, which came into effect on May 15, 2025, has been implemented through coordinated blanket orders issued by each of Canada's provincial and territorial jurisdictions pursuant to the Coordinated Blanket Order 45-935 Exemptions from Certain Conditions of the Listed Issuer Financing Exemption (the "Blanket Order").
The LIFE Exemption
The LIFE Exemption was introduced by the CSA in 2022 to enable issuers listed on a Canadian stock exchange to complete private placement offerings without being subject to a four-month hold period. This exemption allows issuers to distribute freely tradeable listed equity securities without filing a prospectus, relying instead on their continuous disclosure record and the submission of a new offering document. Since its adoption, issuers have raised over $1 billion through the LIFE Exemption. However, market participants have voiced concerns that the capital-raising limits are too restrictive due to the small-offering-size limitations. The Blanket Order directly addresses this concern.
The Blanket Order
Limit Increase
| Former Limits | New Limits |
|---|---|
| The greater of $5 million and 10% of the issuer's market capitalization. | The greater of $25 million and 20% of the aggregate market value of the issuer's listed securities. |
| $10 million in any 12-month period. | $50 million in any 12-month period. |
Column 1 describes the former limits and Column 2 describes new limits.
Changes to Dilution Calculations
The new limit under the LIFE Exemption remains subject to the restriction that an issuer cannot issue more than 50% of its outstanding securities (including any securities to be issued under the proposed offering) within a 12-month period. However, the timing of dilution calculations has changed pursuant to the Blanket Order:
- if the issuer has not relied on the LIFE Exemption in the past 12 months, the outstanding securities are calculated as of the date of the news release announcing the offering; or
- if the issuer has closed an offering under the LIFE Exemption within the past 12 months, the outstanding securities are calculated as of the date of the news release announcing the first offering completed pursuant to the LIFE Exemption within this period.
Under the Blanket Order, issuers may also exclude from dilution calculations any warrants that are convertible into equity securities within 60 days of closing the proposed offering. Previously, under the LIFE Exemption, all warrants were required to be taken into consideration.
Additional Restrictions
Furthermore, under the Blanket Order, offerings must not result in:
- the creation of a new control person of the listed issuer; or
- a person or company acquiring ownership of a listed issuer's securities that would entitle them to elect a majority of the directors.
While the Blanket Order is harmonized across jurisdictions, it is important to note that certain jurisdictions have included an expiry date for its implementation. For example, in Ontario, the Blanket Order will be in effect for only 18 months and will expire on November 15, 2026, unless extended by the Ontario Securities Commission.
Takeaways
We previously wrote that the LIFE Exemption is of particular interest to junior reporting issuers and to any issuer seeking to raise capital while avoiding resale restrictions and the higher costs associated with public offerings. The Blanket Order ultimately serves to enhance the competitiveness of Canada's capital markets by reducing financial and administrative challenges for reporting issuers 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.
