CSA Introduces Temporary Exemptions for Well-Known Seasoned Issuers from Certain Base Shelf Prospectus Requirements

On December 6, 2021, pursuant to Staff Notice 44-306 Blanket Orders Exempting Well-known Seasoned Issuers from Certain Prospectus Requirements (the Notice), the Canadian Securities Administrators (CSA) announced temporary exemptions from certain base shelf prospectus requirements for qualifying well-known seasoned issuers (WKSIs), including an exemption from the requirement to file and obtain a receipt for a preliminary base shelf prospectus before filing a base shelf prospectus and an exemption from the requirement to state the aggregate dollar amount of securities that may be raised under a base shelf prospectus (collectively, the WKSI Exemptions). The WKSI Exemptions are intended to streamline the shelf prospectus process for large, established reporting issuers with up-do-date disclosure records and provide quicker and more efficient access to the Canadian capital markets for such issuers.

The exemptions are being implemented through local blanket orders in each of the provinces and territories of Canada (the Blanket Orders). The Blanket Orders come into effect on January 4, 2022 and will be effective until July 4, 2023 (unless extended by the CSA) or such earlier date on which amendments are made to National Instrument 44-102 Shelf Distributions (44-102) to address the accommodations for WKSIs contemplated by the Blanket Orders.

The Blanket Orders are substantially harmonized across the provinces and territories of Canada. The Blanket Orders applicable in Ontario and Alberta are contained in Ontario Instrument 44-501 and Alberta Securities Commission Blanket Order 44-501, respectively. The Blanket Order applicable in British Columbia (B.C.) is expected to be contained in B.C. Instrument 45-503. The Notice contains a comprehensive list of the Blanket Orders enacted in each province or territory.

KEY TAKEAWAYS

A WKSI is an issuer that has either of the following:

1. outstanding listed equity securities that have a public float of C$500,000,000; or
2. 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 three years preceding the date of the base shelf prospectus.

Subject to the satisfaction of certain other conditions (see “Qualification Criteria” below), an issuer that has been a reporting issuer in at least one jurisdiction of Canada for 12 months and meets the definition of a WKSI within 60 days preceding the date the issuer files a base shelf prospectus are exempt from the requirement to file and obtain a receipt for a preliminary base shelf prospectus in connection with the filing of a base shelf prospectus.

An issuer that satisfies the WKSI qualification criteria will also be exempt from certain of the form requirements with respect to a base shelf prospectus, including:

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

By streamlining the base shelf prospectus process and permitting a base shelf prospectus to be filed for an unspecified amount of securities, the WKSI Exemptions will afford issuers that satisfy the WKSI qualification criteria with greater flexibility in accessing the Canadian capital markets and a quicker and more efficient process for raising capital (with a reduced chance for delay) as compared to non-WKSI issuers.

Specifically, the CSA has indicated that, in the ordinary course, WKSIs which comply with the Blanket Order and file a base shelf prospectus with the local securities commission before noon, local time, can expect a receipt to be issued on the same business day. The Blanket Orders also eliminate the need for WKSIs to file a new or amended base shelf prospectus prior to the expiry of the 25-month effective period as would be necessary for non-WKSI issuers in circumstances where the issuer has exhausted the dollar amount specified in the original base shelf prospectus through prospectus supplement financings.

BACKGROUND

The Blanket Orders are responsive to feedback received by the CSA to its Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers that the current regulatory regime with respect to the filing and clearance of a base shelf prospectus (which requires the filing of a preliminary base shelf prospectus subject to securities commission review) creates unnecessary regulatory burden for large, established reporting issuers that have a strong market following and a complete public disclosure record.

Similarly, the final report of the Capital Markets Modernization Taskforce (established by the Government of Ontario in February 2020) included a recommendation that the Ontario Securities Commission develop a WKSI model in Ontario, similar to the U.S. approach, to streamline the prospectus process for issuers that meet certain eligibility criteria. The U.S. WKSI regime, which is codified in the General Rules and Regulations under the Securities Act of 1933 and has been in place since 2005, permits issuers qualifying as a WKSI to, among other things, register securities offerings on shelf registration statements that become effective automatically upon filing.
 

QUALIFICATION CRITERIA

The Blanket Orders provide that an issuer is exempt from the requirement to file and obtain a receipt for a preliminary prospectus in connection with the filing of a base shelf prospectus, provided that, at the time the issuer files the base shelf prospectus, it satisfies certain conditions, including the following:

• the issuer meets the definition of a WKSI as of a date within 60 days preceding the date the issuer files the base shelf prospectus;
• the issuer is and has been a reporting issuer in at least one jurisdiction of Canada for 12 months;
• the issuer is eligible to file a short form prospectus under National Instrument 44-101 Short Form Prospectus Distributions (44-101) under the basic qualification criteria contained in Section 2.2 of that instrument, or the alternative qualification criteria set out in Section 2.3, 2.4 or 2.5 of that instrument;
• if the issuer has mining operations:

1. the issuer’s most recent audited financial statements disclose (i) gross revenue, derived from mining operations, of at least C$55,000,000 for the issuer’s most recently completed financial year and (ii) gross revenue, derived from mining operations, of at least C$165,000,000 in the aggregate for the issuer’s three most recently completed financial years, in each case preceding the date of the base shelf prospectus; and
2. the issuer files any technical reports that would be required to be filed with a preliminary short form prospectus under National Instrument 43-101 Standards of Disclosure for Mineral Projects;

• the issuer is not an “ineligible issuer” (which includes, among other things, an issuer that (a) has not filed in each jurisdiction in which it is a reporting issuer all periodic and timely disclosure documents required to have been filed in that jurisdiction, (b) is, or during the three years preceding the date of the base shelf prospectus was, (i) an issuer whose operations have ceased, or (ii) an issuer whose principal asset is cash, cash equivalents, or its exchange listing, including a capital pool company, a special acquisition company or any similar entity, or (c) has in the three years preceding the date of the base shelf prospectus become bankrupt or insolvent);
• the issuer is not an investment fund;
• the issuer has no outstanding asset-backed securities;
• the base shelf prospectus includes certain specified cover page disclosure confirming that the issuer qualifies as a WKSI and the date of that determination; and
• the issuer files, in place of a preliminary base shelf prospectus, a letter, dated as of the date of the base shelf prospectus and executed on behalf of the issuer by one of its executive officers or directors stating that the issuer is relying on the applicable Blanket Order, and, among other things, certifying that the issuer has satisfied the other qualification criteria.

NEXT STEPS

The CSA intends to use the 18-month trial period contemplated by the Blanket Orders to evaluate the appropriateness of the WKSI eligibility criteria set out in the Blanket Orders and to identify any public interest concerns or operational considerations that should be addressed in any amendments, including to 44-102.
For further information, please contact:

Kathleen Keilty            604-631-3318
Cat Youdan                  416-863-2511
Trevor Simpson          604-631-4176

or any other member of our Capital Markets group.