Canada: Temporary Relief Will Provide Well-Known Seasoned Issuers (WKSIs) With Accelerated Access To Public Markets

Beginning in 2022, well-known seasoned issuers (WKSIs) will be exempt from certain base shelf prospectus filing requirements, including the requirement to file a preliminary base shelf prospectus, in accordance with substantively harmonized local blanket orders adopted by the Canadian Securities Administrators (CSA).

• WKSIs that satisfy the conditions of the relief will no longer be required to file a preliminary base shelf prospectus. A final short form base shelf prospectus will be the first public step in an offering.
• Relief is provided from certain disclosure requirements relating to a final base shelf prospectus, including the requirement to limit distributions under the base shelf prospectus to the dollar value reasonably expected to be distributed within 25 months.
• The accelerated procedures will permit the receipt to be issued on the same business day, if filed before noon, and if filed after noon, before noon the next business day.
• The exemptions come into effect on January 4, 2022 by way of local blanket orders adopted in each province and territory of Canada.

Well-Known Seasoned Issuers

Issuers that meet the WKSI qualifications and certain other conditions will be able to take advantage of new temporary exemptions from some of the base-shelf prospectus requirements (the WKSI Exemption). The WKSI Exemption defines a "well-known seasoned issuer" or "WKSI" as an issuer that has either of the following:

• outstanding listed equity securities that have a public float of C$500,000,000 (generally calculated as the aggregate market value of the securities held by persons who are not affiliated parties of the issuer); or
• at least C$1,000,000,000 aggregate amount of non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash, not exchange, in the last three years.

To rely on the WKSI Exemption, issuers will need to qualify as a WKSI as of a date within 60 days preceding the filing of the base shelf prospectus and will also need to satisfy the following criteria:

• be a reporting issuer in at least one jurisdiction of Canada for 12 months;
• be eligible to file a short form prospectus under National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101);
• have satisfied the requirements to be qualified to file a short form prospectus (i.e. having filed a notice of intent to qualify);
• not being an "ineligible issuer" (which would include, generally, issuers who are in default of their continuous disclosure obligations, have ceased operations, have become bankrupt, or are subject to a cease trade order);
• not being an investment fund and not having outstanding asset-backed securities; and
• pays the required fees of a preliminary short form prospectus and delivers the personal information forms required under section 4.1 of NI 44-101.

If the issuer has mining operations, its most recent audited financial statements disclose gross revenue derived from mining operations of at least:

• C$55,000,000 for the issuer's most recently completed financial year; and
• C$165,000,000 in the aggregate for the issuer's three most recently completed financial years.

The issuer must also file any technical reports that would be required to be filed with a preliminary short form prospectus under National Instrument 43-101 Standard of Disclosure for Mineral Projects.

Pursuant to the WKSI Exemption, the base shelf prospectus must comply with the requirements of National Instrument 41-101 General Prospectus Requirements, NI 44-101 and NI 44-102 Shelf Distributions. It may not qualify the distribution of any asset-backed security and must include basic disclosure about the distribution as well as required cover page language.

In place of a preliminary base shelf prospectus, an issuer must file a letter that, among other things:

• is dated as of the date of the base shelf prospectus and is executed by an executive officer or director;
• sets out, as applicable, the public float of outstanding listed equity securities or aggregate amount of non-convertible securities, other than equity securities, that the issuer has distributed under a prospectus within the last three years that satisfy the definition of WKSI and the date of that determination;
• specifies the qualification criteria the issuer is relying on to satisfy the eligibility requirements for filing a short form prospectus;
• if the issuer has mining operations, describes the basis on which it satisfies the criteria listed above; and
• states that the issuer is relying on the blanket order and certifies the satisfaction of the eligibility requirements.

Exemptions

Provided the issuer satisfies the above noted conditions, the WKSI will be exempt from the following base shelf prospectus requirements:

• to file and obtain a receipt for a preliminary prospectus in connection with the filing of a base shelf prospectus;
• to limit distributions under the base shelf prospectus to the dollar value that the issuer reasonably expects to distribute within 25 months after date of receipt;
• to state the aggregate dollar amount of securities that may be raised under the base shelf prospectus;
• to include a plan of distribution in the base shelf prospectus, other than to indicate that the plan of distribution will be described in the supplement for any distribution;
• to describe the securities being distributed, other than as necessary to identify the types of securities qualified for distribution under the base shelf prospectus; and
• to describe any selling securityholders in the base shelf prospectus.

The accelerated procedures will permit the receipt to be issued on the same business day, if filed before noon, and if filed after noon, before noon the next business day.

Advantages of the WKSI Exemption

Approximately 550 issuers currently listed on the Toronto Stock Exchange or the TSX Venture Exchange have a market capitalization greater than or equal to $500 million. While the definition of "public float" (see above) and market capitalization are not perfectly aligned, it would appear that a significant number of Canadian reporting issuers will be able to take advantage of the WKSI Exemption with significantly reduced regulatory burden.

Given the strength of the public markets in the last few years, we have seen a number of large cap issuers amend or refile base shelf prospectuses in order to increase the aggregate value of securities being qualified. The WKSI Exemptions will not only reduce the initial regulatory burden on WKSIs, but by exempting WKSIs from the requirement to state an aggregate dollar amount in the base shelf prospectus, the WKSI Exemptions will eliminate the need for such issuers to amend or refile a prospectus within the initial 25-month base shelf period to provide for additional offering capacity.

The WKSI Exemption will also streamline public offerings for dual-listed issuers (and issuers considering becoming dual-listed). The WKSI Exemption better aligns the Canadian shelf prospectus system with the U.S. shelf registration system available to U.S. WKSIs. This is particularly helpful for dual-listed issuers that generally need to have a Canadian base shelf prospectus in place to take full advantage of the multijurisdictional disclosure system (MJDS). Importantly, however, unlike the U.S. WKSI shelf registration statement on Form F-3 that is automatically effective on filing, a Canadian base shelf prospectus will still require a receipt from the regulators. As such, in order to better coordinate the timing of the Canadian and U.S. filings, issuers may want to make arrangements with the regulators to have the receipt for the Canadian base shelf prospectus withheld until market close.

Finally, an accelerated filing timeline for a base shelf prospectus without the need to file a preliminary base shelf prospectus may help ease any potential overhang risk for WKSIs considering filing a base shelf prospectus.

Background

The WKSI Exemption is a result of feedback received by the CSA in relation to its Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, previously discussed here. The CSA had received complaints that certain prospectus requirements in the base shelf context create unnecessary regulatory burden for large, established reporting issuers that have a strong market following and up-to-date disclosure records. In Ontario similar comments were made by the Capital Markets Modernization Taskforce (Taskforce), whose final report in January 2021 included a recommendation that the Ontario Securities Commission develop a WKSI model in Ontario to streamline the prospectus process for certain eligible issuers. For more information on the Taskforce's consultation process, please see here. In drafting the exemptions, the CSA also researched the United States WKSI regime (which has been in use for several years) and conducted targeted consultations with market participants.

Going Forward

Implementation of the WKSI Exemption through blanket orders effective until July 4, 2023 will allow the CSA to make the WKSI Exemption available on a trial basis to determine how best to adopt these procedures through future rule amendments. The blanket orders will provide an opportunity to evaluate the appropriateness of the eligibility criteria and identify any potential public interest concerns or operational considerations that should be addressed in future rule amendments.

The CSA is considering whether future rule amendments to implement a Canadian WKSI regime would be appropriate. Any amendments to implement permanent accommodations for WKSIs will be adopted by the CSA through the normal rule-making procedures on a coordinated basis.

For further information, please see the following local blanket orders:

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.