CSA introduces temporary exemptions for well-known seasoned issuers (WKSIs) from certain base ‎shelf prospectus requirements

On December 6, 2021, pursuant to CSA Staff Notice 44-306 Blanket Orders Exempting Well-known Seasoned Issuers from Certain Prospectus Requirements, the Canadian Securities Administrators (“CSA”) announced a pilot project which introduces temporary exemptions (the “Temporary Exemptions”) from certain base shelf prospectus requirements for qualifying well-known seasoned issuers (“WKSI”). The Temporary Exemptions are intended to permit WKSIs that satisfy certain conditions to file, and obtain a receipt for, a base shelf prospectus on an accelerated basis, without the requirement to first file a preliminary base shelf prospectus, in addition to other reduced disclosure obligations as further described below.

The CSA has indicated this pilot project will assist in evaluating the appropriateness of the eligibility criteria and conditions prescribed by the Temporary Exemptions, and identifying any potential public interest concerns that should be addressed in any future rule amendments to implement a WKSI regime.

The Temporary Exemptions are intended to make it more efficient for WKSIs to raise capital in Canada. Given that WKSIs are well-known reporting issuers which have a strong market following, complete public disclosure record and sufficient public float, among other things, the CSA indicates that this increased efficiency should reduce the regulatory burden on these issuers without compromising investor protection. The adoption of the Temporary Exemption is a step in the CSA’s initiative to reduce the regulatory burden on capital markets participants, and follows a recommendation of the Capital Markets Modernization Taskforce.

The Temporary Exemptions will be implemented through local blanket orders in each of the provinces and territories of Canada (the “Blanket Orders”), which are largely harmonized across the jurisdictions. The Blanket Orders come into effect on January 4, 2022, and remain in effect until July 4, 2023, unless extended or otherwise adopted. 

Background

The Temporary Exemptions and Blanket Orders were established in response to feedback received by the CSA to its Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers that certain prospectus requirements in the base shelf context create unnecessary regulatory burden for large, established reporting issuers that have strong market following and up-to-date disclosure records. The feedback received recommended enhancing the current prospectus system by amending the base shelf prospectus regime to implement a Canadian WKSI regime.

The CSA has indicated that, in its experience, base shelf prospectuses filed by issuers that met the definition of a WKSI were less likely to result in a significant number of substantive deficiency comments. As a result, the CSA undertook a research project that included research of the United States WKSI regime and targeted consultations with market participants.

The pilot project will assist CSA in considering whether future rule amendments to implement a Canadian WKSI regime would be appropriate.

Available disclosure exemptions

In addition to the exemption to file and obtain a receipt for a preliminary base shelf prospectus, the Blanket Orders exempt issuers that meet the WKSI qualifications and certain conditions from the requirement to include specific information from its base shelf prospectus, including (a) the aggregate dollar amount of securities that may be raised, and the number securities qualified for distribution under, the base shelf prospectus (b) the plan of distribution, (c) a description of the securities being distributed, other than as necessary to identify the types of securities qualified for distribution under the base shelf prospectus, and (d) a description of any selling security-holders.

The Blanket Orders exempt WKSI issuers from the requirement to limit distributions under the base shelf prospectus to the dollar value the issuer reasonably expects to distribute within 25 months after the date of the receipt for the base shelf prospectus. Accordingly, a WKSI issuer will not be required 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 where the aggregate value of the securities distributed through the base shelf prospectus exceeds the maximum dollar amount specified in the original base shelf prospectus.

WKSI criteria

A WKSI is an issuer that has either: (a) outstanding listed equity securities that have a public float of C$500,000,000; or (b) 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.

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 all of 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 pursuant to National Instrument 44-101 Short Form Prospectus Distributions (“NI 44-101”) under any of sections 2.2, 2.3, 2.4 or 2.5 thereof;
• either the issuer has satisfied the requirements to be qualified to file a short form prospectus under section 2.8 of NI 44-101 or at least ten business days have passed since the issuer filed the notice under section 2.8 of NI 44-101;
• if the issuer has mining operations,
  • the issuer’s most recent audited financial statements disclose (a) gross revenue, derived from mining operations, of at least C$55,000,000 for the issuer’s most recently completed financial year, and (b) gross revenue, derived from mining operations, of at least C$165,000,000 in the aggregate for the issuer’s 3 most recently completed financial years;
  • 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 means, 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, (b) is, within the three years preceding the date of the base shelf prospectus was, either an issuer whose operations have ceased, or an issuer whose principal asset is cash, cash equivalents, or its exchange listing, including, without limitation, a capital pool company, a special purpose acquisition company, or a growth acquisition corporation or any similar entity, (c) has within the three years preceding the date of the base shelf prospectus years become bankrupt or made a proposal under any legislation relating to bankruptcy or insolvency (d) has within the last three years of the date of the base shelf prospectus become bankrupt or insolvent, or (e) has been the subject of any cease trade order or suspension of trading within the three years preceding the date of the base shelf prospectus‎;
• the issuer is not an investment fund;
• the issuer has no outstanding asset-backed securities;
• the base shelf prospectus, among other things, does not qualify the distribution of any asset-backed security, includes as part of the basic disclosure about the distribution a statement that it has been filed in reliance on the Temporary Exemptions for WKSIs together with 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 that is dated as of the date of the base shelf prospectus which states that the issuer is relying on the applicable Blanket Order and that otherwise meets the definition of WKSI and satisfies the other qualification criteria set out above.

Implications and applications

The Blanket Orders permit eligible WKSIs to take advantage of accelerated processes for the filing of a base shelf and to gain quicker access to Canada’s capital markets as they bypass the need to first file and obtain a receipt for a preliminary base shelf prospectus. The streamlined process permitted by the Blanket Orders will provide issuers that meet the WKSI eligibility criteria with enhanced flexibility and will correspondingly reduce the regulatory burdens on such issuers.

The CSA has advised that in the ordinary course, for a final base shelf prospectus filed with the principal regulator before noon, local time, and in compliance with the requirements of National Instrument 44-102 Shelf Distributions and the Blanket Orders, it expects that the accelerated procedures will permit the receipt to be issued on the same business day, or otherwise can expect the receipt to be issued on the next business day following the filing. Under the current regime, there is a budgeted period of roughly one week between the filing of a preliminary base shelf prospectus and the completion of regulatory review and settlement of any comments thereon, such that an issuer can proceed with filing a final base shelf prospectus.

Issuers relying on the Temporary Exemptions and utilizing the WKSI regime are required to pay the fees and deliver any additional supporting documents, including any personal information forms, that would be required with the filing of a preliminary base shelf prospectus with the base shelf prospectus as if the issuer were filing a preliminary short-form prospectus.

Dual-listed issuers

The Temporary Exemptions under the Blanket Orders are a positive step towards aligning the Canadian shelf prospectus system with the United States shelf registration system available to certain qualifying well-known seasoned issuers in the United States. Accordingly, the Blanket Orders are expected to streamline the shelf prospectus process and access to capital markets for qualifying dual-listed issuers. It should be noted that while the United States shelf registration system provides for similar accommodations for qualifying well-known seasoned issuers, there are some differences which may mean that not all issuers that qualify as a WKSI under the Canadian regime will qualify for use of, and be able to rely on, the corresponding regime in the United States. Even if an issuer does qualify for use of both the Canadian and Untied States WKSI regimes, it is important to be aware that in Canada, a final base shelf prospectus is required to be receipted, while in the Untied States a shelf registration statement for a qualifying issuer will become automatically effective.

Next steps

The Temporary Exemptions under the Blanket Orders will permit the CSA 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 amendment. The trial of the Temporary Exemptions will assist the CSA in determining how best to adopt these procedures.

Following the completion of the pilot project, the CSA has indicated that any future rule amendment will be adopted through the normal rule-making process.

Additional information

For further details, please see CSA Staff Notice 44-306 Blanket Orders Exempting Well-known Seasoned Issuers from Certain Prospectus Requirements and the following local Blanket Orders:

Please contact Sydney Kert, Jamie Mandell or any other member of our Capital Markets group if you have any questions or would like to discuss the Temporary Exemptions and whether taking advantage of the WKSI pilot program is right for your organization.

The foregoing is intended for informational purposes only and does not constitute legal advice or an opinion on any issue.

This article provides only general information about legal issues and developments, and is not intended to provide specific legal advice. Please see our disclaimer for more details.