Canadian Securities Administrators Propose Amendments to Shelf Prospectus Regime for Well-Known Seasoned Issuers
On September 21, 2023, the Canadian Securities Administrators (“CSA”) published a notice and request for comment regarding proposed amendments to National Instrument 44-102 – Shelf Distributions as well as certain other consequential amendments (the “Proposed Amendments”). If adopted, the Proposed Amendments would reduce the regulatory burden for well-known seasoned issuers (“WKSIs”) through a permanent expedited base shelf prospectus regime for WKSIs. The Proposed Amendments follow on from the WKSI pilot program launched on January 4, 2022 through local blanket orders in all of the provinces and territories of Canada providing for temporary exemptions from certain base shelf prospectus requirements (the “Pilot Program”).
The notice and request for comment has been published for a 90-day comment period which is set to expire on December 20, 2023. We anticipate that the permanent WKSI framework could come into force in mid-2024, at the earliest. In the interim period, the Pilot Program will remain in effect until the final amendments are adopted.
The WKSI framework was initially introduced by the CSA as a way to reduce unnecessary regulatory burdens on large and established reporting issuers. The WKSI framework is meant to accelerate market access for WKSIs, promote more transaction certainty and facilitate cross-border offerings by aligning the Canadian framework with the WKSI regime adopted in the United States in 2005.
Since January 2022, issuers that have either: (i) qualifying public equity of at least C$500,000,000 or (ii) qualifying public debt of at least C$1,000,000,000 can expedite the filing of a base shelf prospectus and receive a prompt receipt without the need for a preliminary base shelf prospectus. In addition, eligible issuers are exempt from disclosing certain information in their base shelf prospectus, such as the number and aggregate dollar amount of securities qualified under the base shelf prospectus, the distribution plan, and a description of the securities qualified for distribution. However, eligible issuers are still required to provide essential information for identifying the types of securities qualified.
The Proposed Amendments are generally consistent with the WKSI regime under the Pilot Program, however, there are several key differences, which are summarized in the table below.
A receipt needs to be issued before a WKSI base shelf prospectus can be used.
Upon filing the WKSI base shelf prospectus, a receipt is automatically deemed to be issued.
This modification would be in alignment with the current U.S. WKSI regime and would accelerate the overall process.
The eligible issuer must have been a reporting issuer in at least one jurisdiction in Canada for the previous 12 months.
The eligible issuer must have been a reporting issuer in at least one jurisdiction in Canada for the previous 3 years.
The seasoning period under the Proposed Amendments is significantly longer and differs from the U.S. regime, which only requires a one-year reporting history for an issuer to be eligible. The CSA has indicated that the rationale for the change was to address the concern that an issuer that has been a reporting issuer for only 12 months may not have a sufficient continuous disclosure record, market following or history of participation in the capital markets to justify participation in the WKSI regime.
The WKSI base shelf prospectus is effective for up to 25 months from the date the receipt is issued.
The WKSI base shelf prospectus is effective for up to 37 months from the date of filing and deemed receipt.
This modification benefits eligible issuers.
Each year after the initial filing, on or before their annual filing date, issuers that have filed a WKSI base shelf prospectus will have to confirm that they remain WKSIs and are still eligible under the WKSI regime. Issuers can do so by including a statement in their annual information form or in an amendment to their WKSI base shelf prospectus.
If an issuer is no longer eligible, it will have to withdraw its WKSI base shelf prospectus and issue a press release announcing that it will not distribute securities under a prospectus supplement.
This modification would be in alignment with the current U.S. WKSI regime which includes an annual confirmation.
The Pilot Program is silent on amendments to the WKSI base shelf prospectus.
Amendments to WKSI base shelf prospectus are expressly permitted and do not require the issuance of a receipt.
The Proposed Amendments provide for amendments to WKSI base shelf prospectus and the process is simplified as a receipt will be deemed to have been issued once the required conditions for the amendments are met.
Calculation of equity threshold
The equity threshold under the Pilot Program is determined by the aggregate market value of securities held by non-affiliates using the price at which the securities were last sold in the principal market on a date within 60 days of the filing of a WKSI base shelf prospectus.
The public equity threshold will be based on the aggregate market value of the issuer’s listed equity securities (excluding securities held by affiliates and reporting insiders of the issuer), using the simple average of the daily closing price of the securities on the applicable stock exchange over the preceding 20 trading days.
The public equity threshold remains the same at $500 million, but modifications were made to exclude reporting insiders (as such information is publicly available) and to use a 20-day simple average closing price of the issuer’s securities, for consistency with other rules that refer to market price.
The current Pilot Program excludes an issuer if within the last three years before filing, the issuer or any of its subsidiaries was the subject of any “penalties or sanctions”, including restrictions on the use of any type of prospectus, or exemption, imposed by a court relating to securities legislation or by a securities regulatory authority.
The Proposed Amendments add new criteria to exclude an issuer if the issuer or any of its subsidiaries has been subject to 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 or similar authority in a foreign jurisdiction related to a claim based in whole or in part on fraud, theft, deceit, misrepresentation, conspiracy, insider trading, unregistered activity or illegal distribution, within the last 3 years before filing.
This modification now describes with greater specificity the types of penalties and sanctions that would preclude an issuer from filing a WKSI base shelf prospectus.
Under the current Pilot Program, if an issuer that files a WKSI base shelf prospectus has mining operations, its most recent audited financial statements must disclose prescribed revenue from mining operations, and the issuer must file 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 (“NI 43-101”).
Under the Proposed Amendments, if an issuer that files a WKSI base shelf prospectus has a mineral project, its most recent audited financial statements must disclose prescribed revenue from mining operations, and the issuer must file any technical reports that would be required to be filed with a preliminary short form prospectus under NI 43-101.
This requirement is generally unchanged, except that the introductory language refers to “mineral project” rather than “mining operations”, to align with NI 43-101.
If you have any questions regarding this notice and request for comment, we invite you to contact any of the authors or any other member of our Capital Markets team.
 For more information, see our December 13, 2021 post: “Canadian Securities Administrators introduce blanket orders exempting “well-known seasoned issuers” from certain base shelf prospectus requirements” https://www.mccarthy.ca/en/insights/blogs/canadian-securities-regulatory-monitor/canadian-securities-administrators-introduce-blanket-orders-exempting-well-known-seasoned-issuers-certain-base-shelf-prospectus-requirements