On September 21, 2023, the Canadian Securities Administrators (CSA) announced proposed amendments (Proposed Amendments) to National Instrument 44-102 Shelf Distributions (NI 44-102) and certain other instruments and policies to establish a permanent expedited shelf prospectus regime for well-known seasoned issuers (WKSIs). The WKSI regime has been operating on a trial basis since January 2022 pursuant to the Blanket Orders, as defined below. Through the Proposed Amendments, the CSA has set out to reduce unnecessary regulatory burden for WKSIs seeking market access and more closely align the Canadian WKSI regime with the United States model to better facilitate cross-border offerings.
Following stakeholder feedback, regulators in each of the provinces and territories of Canada issued temporary local blanket orders (Blanket Orders) as part of the CSA’s larger initiative to provide exemptions from certain base shelf prospectus requirements for qualifying WKSIs. The Blanket Orders came into effect on January 4, 2022.
As discussed in a previous Blakes Bulletin: CSA Introduces Temporary Exemptions for Well-Known Seasoned Issuers from Certain Base Shelf Prospectus Requirements, the Blanket Orders allow issuers that meet the WKSI qualifications and certain other conditions to file a final base shelf prospectus with their securities commission and obtain a receipt for that prospectus on an accelerated basis without first filing a preliminary base shelf prospectus.
Since the Blanket Orders came into effect, the CSA has evaluated the implementation and efficacy of the Blanket Orders and considered feedback from various stakeholders to determine how best to implement a permanent WKSI regime through rule amendments. The Blanket Orders will remain in effect until the Proposed Amendments are adopted.
The Proposed Amendments
Under the Proposed Amendments, an issuer qualifies as a WKSI if it (i) either has qualifying public equity of at least C$500-million or qualifying public debt of at least C$1-billion, (ii) has been a reporting issuer in Canada for the past three years, and (iii) is eligible to file a short form prospectus under applicable securities law. If the issuer has a mineral project, the issuer must meet additional criteria by having gross revenue derived from mining operations of (a) at least C$55-million in the most recent financial year, and (b) at least C$165-million in the aggregate over the past three financial years. Additionally, to file under the WKSI regime, issuers must also ensure they are current with all periodic and timely disclosure documents.
The Proposed Amendments permit issuers that satisfy the qualification criteria to:
Omit certain disclosure from the base shelf prospectus, including the aggregate dollar amount of securities that may be raised under that prospectus.
File a final base shelf prospectus without first filing a preliminary base shelf prospectus.
Be deemed to receive a receipt for that prospectus effective for a period of 37 months, subject to complying with the annual confirmation requirements described below, upon filing a final base shelf prospectus.
Under the Proposed Amendments, issuers with a WKSI base shelf prospectus must annually confirm their WKSI status. This can be done by (i) adding a statement in its annual information form, or (ii) amending the WKSI base shelf prospectus. If an issuer loses its WKSI status, it must publicly announce that it will not distribute securities using a prospectus supplement and must withdraw the base shelf prospectus.
Key Differences Between the Blanket Orders and the Proposed Amendments
The Proposed Amendments generally follow the framework of the Blanket Orders, subject to the following key differences:
Extended seasoning period. Under the Proposed Amendments, an issuer is required to be reporting in at least one jurisdiction in Canada for the previous three years, compared to 12 months under the Blanket Orders.
Deemed receipt. The Proposed Amendments remove the requirement for a receipt to be issued for a WKSI base shelf prospectus. Instead, a receipt will be deemed to be issued in each of the jurisdictions where the prospectus is filed upon the filing of that prospectus.
Lengthened term. The Proposed Amendments allow for the WKSI base shelf prospectus to be effective for up to 37 months from the date of the deemed issuance (subject to compliance with certain requirements), compared to 25 months under NI 44-102.
Amendments to a prospectus. The Proposed Amendments set out the requirements for an amendment to a WKSI base shelf prospectus and contemplate a deemed receipt for such amendment.
Calculation of public equity. Under the Proposed Amendments, the public equity threshold remains the same, but the calculation method will change. Public equity will be based on the average daily closing price of the issuer’s listed securities over the past 20 trading days. Reporting insiders are excluded from this calculation. This deviates from the Blanket Orders where it was based on the security sale price in the principal market 60 days before filing the WKSI base shelf prospectus.
WKSI confirmation. Annually, issuers with a WKSI base shelf prospectus must confirm their WKSI eligibility within 60 days before filing their annual financial statements. They must indicate their ongoing eligibility in their annual information form or through an amendment to their WKSI base shelf prospectus. If they lose eligibility, they must publicly announce they will not distribute securities under the WKSI regime and withdraw their prospectus.
Ineligibility criteria. Under the Proposed Amendments, issuers will be barred from filing a WKSI base shelf prospectus if they or their subsidiaries faced legal actions or penalties in the past three years in Canada or abroad due to issues such as fraud, theft, deceit, misrepresentation, insider trading or illegal distribution.
Exemptive Relief. Under the Proposed Amendments, exemptive relief applications will be considered. Such applications are not accepted under the Blanket Orders.
The CSA is seeking feedback on the Proposed Amendments and has included a series of questions for stakeholders in its request for comment available here. Stakeholders are invited to provide comments by December 20, 2023.
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