The CSA proposes permanent relief from shelf distribution requirements for large seasoned issuers

Since early 2022 qualifying well-known seasoned issuers (WKSIs) have been able to access the capital markets more quickly and flexibly than other reporting issuers. On December 6, 2021, the Canadian Securities Administrators (the CSA) temporarily exempted WKSIs from certain base shelf prospectus requirements by implementing substantially similar blanket orders, instruments or decisions in each province and territory of Canada (collectively, the Blanket Orders). This exemptive relief reduces the regulatory burden for well-known reporting issuers that have a strong investor following, a complete continuous disclosure record and a sufficient public float and allows such issuers to react quickly to market conditions when distributing securities using the shelf distribution rules.  

The CSA indicated it would monitor the use of the exemption with a view to determining whether to introduce permanent amendments to National Instrument 44-102 Shelf Distributions (NI 44-102) and related rules. In particular, the CSA indicated it would consider and identify in such a review appropriate eligibility criteria and public interest and operational concerns. On September 23, 2023, the CSA published proposed amendments to NI 44-102 and related rules (the Proposed Amendments) which, if introduced, will make the Blanket Orders’ relief permanent. The Proposed Amendments are open for public comment until December 20, 2023.

The Proposed Amendments

While the Proposed Amendments address the same subject matter as the Blanket Orders and provide an expedited offering regime for WKSIs, they also introduce changes to the Blanket Orders, which are highlighted below. The Proposed Amendments provide as follows:

• WKSIs will be required to file a final base shelf prospectus with the relevant securities regulators. However, unlike the Blanket Orders, which require an issuer to obtain a receipt for the final base shelf prospectus, a WKSI will be deemed to have received a receipt for the final prospectus, thereby providing greater time certainty for WKSIs wishing to offer securities. A base shelf prospectus will not be reviewed by the securities regulators.
• WKSIs will be allowed to issue an unlimited dollar value of securities under the final base shelf prospectus. As a result, issuers will have more flexibility and will not have to file an amended or new base shelf prospectus when a fixed value of securities qualified has been reached. Specifically, WKSIs will not need to include the following “shelf information” in their base shelf prospectus:
  • the number of securities qualified under the base shelf prospectus;
  • a plan of distribution, although the issuer must indicate that a plan of distribution will be described in any supplement used to draw down funds under the shelf prospectus;
  • the securities being offered, other than as necessary to identify the types of securities being qualified; and
  • a description of the selling shareholder(s).
• the final base shelf prospectus will be effective for 37 months from the date of filing, an increase from the 25 month period currently set out in the Blanket Orders and NI 44 102.
• a WKSI must make disclosure in its final base shelf prospectus of its status as a WKSI, the fact it is relying on WKSI requirements and that the prospectus has not been reviewed by a securities regulatory authority. Personal information forms will need to be filed with the final base shelf prospectus, if required.
• a WKSI that has filed a base shelf prospectus will be required to annually certify its WKSI status. Such annual certification will be required to be made within 60 days before the date its annual financial statements are required to be filed. The WKSI must also confirm in its AIF or in an amendment to its base shelf prospectus that it still qualifies as a WKSI. If a WKSI ceases to qualify, it would need to withdraw its base shelf prospectus and issue a news release. This annual certification represents a change from the Blanket Orders.

What is a WKSI?

A WKSI is an issuer that has either:

• outstanding listed equity securities that have “qualifying public equity” of at least CDN$500 million; or
• distributed under a prospectus in primary offerings for cash in the last three years at least CDN$1 billion of non-convertible securities, other than equity securities.

The Proposed Amendments replace the term “public float” with “qualifying public equity” and define it to exclude not only securities held by affiliated entities but also held by reporting insiders, which are not excluded from the definition of public float in the Blanket Orders. 

WKSIs with mining operations 

An issuer with mining operations will qualify as a WKSI if it has:

• gross revenue derived from mining operations of at least CDN$55 million for its most recently completed financial year; and
• gross revenue derived from mining operations of at least CDN$165 million in the aggregate for its three most recently completed financial years. 

In addition, WKSIs with mining operations must file any technical reports required under National Instrument 43 101 Standards of Disclosure for Mineral Projects.

Additional conditions of the exemptive relief

In order to rely on the WKSI exemptive relief, the following additional conditions are applicable:

• the issuer is a WKSI as of a date within 60 days preceding the date it files the base shelf prospectus;
• the WKSI is, and has been, a reporting issuer in at least one Canadian jurisdiction for the previous three years, which represents an increase from the 12-month period in the Blanket Orders;
• the WKSI is eligible to file a short form prospectus under National Instrument 44-101 Short Form Prospectus Distributions and has satisfied the qualification requirements of the instrument or filed the necessary 10 business day notice requirement under the instrument;
• the issuer is an “eligible issuer.” An eligible issuer is an issuer to which the following apply:
  • it has filed with the relevant securities regulator(s) all periodic and timely disclosure documents required to have been filed;
  • neither it, nor any person or company that completed a restructuring transaction with it, has been in the past three years, (i) a person or company whose operations have ceased; or (ii) a person or company whose principal asset is cash, cash equivalents, or its exchange listing, including a capital pool company, a special purpose acquisition company, or a growth acquisition corporation or any similar entity;
  • it has not in the past three years become bankrupt, made a proposal under any bankruptcy or insolvency legislation or been subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets;
  • neither it, nor any of its subsidiaries, has been in the past three years the subject of any order, judgment, decree, sanction or administrative penalty imposed by or has entered into a settlement arrangement with a court or by a securities regulatory authority related to a claim based in whole or in part in fraud, theft, deceit, misrepresentation, conspiracy, insider trading, unregistered activity or illegal distribution; and
  • it has not been the subject of a cease trade order or order similar to a cease trade order in any Canadian jurisdiction or a suspension of trading under section 12(k) of the US Securities Exchange Act of 1934 in the past three years.
• the issuer must not be an investment fund or an issuer with outstanding asset-backed securities or that seeks to qualify the distribution of asset-backed securities under the short form prospectus rules.  

Dual-listed issuers 

The Amended Proposals will be of interest to dual-listed issuers, as they go a step further towards harmonizing Canada with the US shelf registration system for US WKSIs. As the proposals no longer require that the final base shelf prospectus be receipted, the two systems will be more closely aligned.

Next steps

The Blanket Orders will remain in effect until the Proposed Amendments come into force.