Overview

On September 21, 2023, the Canadian Securities Administrators (the "CSA") issued a CSA Notice and Request for Comment (the "Notice") seeking public comment on a proposed expedited prospectus regime for well-known seasoned issuers ("WKSIs"). The Notice proposes to amend National Instrument 44-102 Shelf Distributions ("NI 44-102") relating to base shelf prospectus requirements for WKSIs (the "Proposed Amendments").

The Proposed Amendments reflect an attempt by the CSA to permanently streamline the base shelf prospectus process for WKSIs in order to foster efficient capital raising in Canadian public markets. The Proposed Amendments will permit WKSIs to:

  • file a final base shelf prospectus and be deemed to receive a receipt for that prospectus without first filing a preliminary base shelf prospectus or undergoing any regulatory review;
  • omit certain disclosure from the base shelf prospectus (as set out below), including the aggregate dollar amount of securities that may be raised; and
  • benefit from receipt effectiveness for a period of 37 months from the date of deemed issuance, subject to the requirement for the WKSI to reassess its qualification annually.

Background

On December 6, 2021, the CSA introduced temporary exemptions for WKSIs from certain base shelf prospectus requirements. These exemptions were implemented through temporary local blanket exemption orders which were substantively harmonized across Canada, including CSA Staff's views thereon in CSA Staff Notice 44-306 – Blanket Orders Exempting Well-known Seasoned Issuers from Certain Prospectus Requirements (collectively, the "Blanket Orders"). The Blanket Orders provided exemptive relief for WKSIs regarding various regulatory requirements when filing a base shelf prospectus and allowed eligible issuers to file and receive a receipt for a final base shelf prospectus on an accelerated basis without first filing a preliminary base shelf prospectus. As of January 31, 2023, there were 354 reporting issuers that qualified to file a WKSI base shelf prospectus under the Blanket Orders and 79 reporting issuers had filed WKSI base shelf prospectuses as of the Notice's publication date.

After evaluating the Blanket Orders and stakeholder feedback, the CSA are now proposing a permanent change to the base shelf prospectus regime in Canada, effectively nationalizing the Blanket Orders with some notable differences described below.

The Proposed Amendments

Under the Proposed Amendments, an issuer may file a WKSI base shelf prospectus if it is a WKSI, an "eligible issuer" and is not an investment fund.

A WKSI is defined as an issuer that has been a reporting issuer in at least one Canadian jurisdiction for the preceding three years (as opposed to 12 months under the Blanket Orders), is qualified to file a short form prospectus, has no outstanding asset-backed securities and has, on a date during the preceding 60 days prior to filing a base shelf prospectus, either:

(i) qualifying public equity of at least $500 million (excluding securities held by affiliates and reporting insiders); or

(ii) qualifying public debt (being non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash in the three years prior) of at least $1 billion.

For mining issuers, their most recent audited annual financial statements must also disclose: (i) gross revenue, derived from mining operations, of at least $55 million for the most recently completed financial year; and (ii) gross revenue, derived from mining operations, of at least $165 million in the aggregate for the issuer's three most recently completed financial years.

In addition to the above criteria, to be an "eligible issuer" an issuer must have filed all required periodic and timely disclosure documents, and during the preceding three years must not:

(i) be an issuer whose operations have ceased or whose principal assets are cash, cash equivalents or its exchange listing, including a capital pool company, a special purpose acquisition company or a growth acquisition corporation;

(ii) be an issuer that has been bankrupt;

(iii) have been the subject of any order, judgement or administrative penalty, or entered into any settlement agreement with or approved by a court or securities regulatory authority; or

(iv) have been the subject of a cease trade order.

The Proposed Amendments include the following amendments for issuers that satisfy the above qualification criteria.

  • Deemed Receipt: A WKSI base shelf prospectus would become immediately effective upon filing and be deemed to receive a receipt upon the filing or an amendment thereof in all jurisdictions in Canada where the prospectus has been filed. Whereas the Blanket Orders require the issuance of a receipt by the principal regulator for a final base shelf prospectus, albeit on an accelerated basis.
  • Shelf Effectiveness: A WKSI base shelf prospectus will generally be effective for 37 months from the date it was issued, subject to the requirement of the issuer to reassess its qualification to use the WKSI regime annually. Under the Blanket Orders, a WKSI base shelf prospectus remains effective for 25 months from the date of the receipt, as with a non-WKSI base shelf prospectus.
  • Omitting Disclosure: WKSIs will be permitted to omit, from the base shelf prospectus, disclosure relating to the number of securities qualified for distribution, a plan of distribution, a description of the securities to be distributed and disclosure regarding any selling securityholder.
  • Annual Eligibility Confirmation: WKSIs that have filed a base shelf prospectus will be required to confirm whether they continue to qualify as a WKSI on an annual basis, which must be supplemented by a statement evidencing its WKSI status in its annual information form or by filing an amendment to its WKSI base shelf prospectus indicating that it continues to be a WKSI. The Blanket Orders contain no annual confirmation requirement.
  • No Longer Qualifying as a WKSI: Under the Proposed Amendments, if an issuer no longer qualifies as a WKSI then the issuer will be required to publicly announce that it will not distribute securities under a prospectus supplement to the WKSI base shelf prospectus and withdraw the WKSI base shelf prospectus.
  • Payment of Fees: The Proposed Amendments will adopt specific fees for WKSI base shelf prospectus filings in some jurisdictions, rather than requiring the payment of fees that would otherwise be due on filing of a preliminary short form prospectus.

While the Proposed Amendments have similarities to the Blanket Orders, additional notable differences include the following amendments.

  • Seasoning Period: Under the Proposed Amendments, an issuer is required to have been a reporting issuer in at least one Canadian jurisdiction for the previous three years, an increase from the twelve-month requirement in the Blanket Orders.
  • Public Float: The Proposed Amendments calculate the public equity threshold of $500 million using the aggregate market value of the issuer's listed equity securities, excluding securities held by affiliates and reporting insiders of the issuer, and it is calculated using the simple average of the daily closing price of the securities for the previous 20 trading days. The equity threshold under the Blanket Orders is calculated only by excluding securities held by affiliates and using a single closing price of any day during the prior 60-day period.
  • Issuer Ineligibility: The Proposed Amendments describe with greater specificity the types of penalties and sanctions that would preclude an issuer from filing a WKSI base shelf prospectus. An issuer would be prohibited from filing a WKSI base shelf prospectus or continuing to use a previously-filed WKSI base shelf prospectus if, during the three years immediately preceding the date of the WKSI base shelf prospectus, the issuer or any of its subsidiaries has been the subject of an order, judgment, decree, sanction, or administrative penalty imposed by, or has entered into a settlement agreement with or approved by, a court in Canada or a foreign jurisdiction or a securities regulatory authority related to a claim based on fraud, theft, deceit, misrepresentation, conspiracy, insider trading, unregistered activity or illegal distribution.

Next Steps

The Proposed Amendments seek, and can be expected, to make it more efficient for WKSIs to raise capital and provide increased certainty regarding transaction timing.

The CSA are seeking comments generally on the Proposed Amendments, and specifically with respect to:

  • the qualification criteria in the definition of a WKSI;
  • the extension of the reporting issuer seasoning period from 12 months to three years; and
  • the eligibility criteria in the definition of "eligible issuer", particularly relating to penalties and sanctions, outstanding asset-backed securities and issuers subject to a cease trade order or similar order within the previous three years, and whether other eligibility criteria should disqualify an issuer from the WKSI regime.

The public comment period will expire on December 20, 2023.

The authors gratefully acknowledge the assistance of articling student Andrew Jensen in the preparation of this update.

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.