Business Law Blog

The Canadian Securities Administrators have published proposed amendments to National Instrument 44-102 — Shelf Distributions and related amendments to certain policies and rules (collectively, the “Proposed Amendments”) that would supersede blanket orders that have been in place since early 2022 (“Blanket Orders”) and establish a permanent, streamlined regime for issuers that qualify as “well-known seasoned issuers” (“WKSI”). The Proposed Amendments have been published for a 90-day comment period expiring on December 20, 2023.

If adopted, the Proposed Amendments will allow, among other things, WKSI to: (i) file a final base shelf prospectus and be deemed to receive a receipt for that prospectus without first filing a preliminary base shelf prospectus or undergoing any regulatory review; (ii) omit certain disclosure from the base shelf prospectus (for example, the aggregate dollar amount of securities that may be issued under the base shelf prospectus); and (iii) benefit from receipt effectiveness for a period of 37 months from the date the base shelf prospectus was filed, subject to the requirement that, on an annual basis, the issuer reassesses and publicly confirms its eligibility to use the WKSI regime.

To qualify as a WKSI, an issuer, among other criteria, must have either (i) outstanding listed equity securities (excluding securities held by affiliates and reporting insiders) with a market value of at least $500 million, or (ii) at least $1 billion aggregate amount of non-convertible debt securities distributed under a prospectus in primary offerings for cash in the last three years. Additionally, for issuers with a mineral project, the issuer’s most recent audited annual financial statements must disclose gross revenue derived from mining operations of at least (i) $55 million for the issuer’s most recently completed financial year, and (ii) $165 million in aggregate for the issuer’s three most recently completed financial years.

While the Proposed Amendments largely align with the Blanket Orders, the following are some of the key differences:

Three-year Seasoning Period: Under the Proposed Amendments, an issuer that files a WKSI base shelf prospectus must have been a reporting issuer in at least one jurisdiction in Canada for the previous three years, rather than only 12 months as required under the Blanket Orders.

Deemed Receipt: Under the Proposed Amendments, no receipt is issued after filing a WKSI base shelf prospectus; instead, a receipt is deemed to be issued upon filing. The Blanket Orders have an accelerated receipt mechanism.

Extended Effectiveness: The Proposed Amendments provide for a WKSI base shelf prospectus to remain effective for 37 months from the date of deemed receipt, subject to compliance with certain requirements, including the annual confirmation described below. The Blanket Orders do not contain specific provisions addressing receipt effectiveness, and as a result, the 25-month period under the general shelf prospectus regime applies.

Annual Confirmation: The Proposed Amendments require an issuer that has filed a WKSI base shelf prospectus to confirm, on an annual basis (within 60 days before the date on which the issuer’s audited annual financial statements are required to be filed), that (i) it continues to be a WKSI, and (ii) it remains eligible. An issuer must also signal to the market that it remains eligible to use the WKSI regime in its annual information form or in an amendment to its WKSI base shelf prospectus. An issuer that no longer meets the requirements to use the WKSI regime must withdraw its WKSI base shelf prospectus and publicly announce that it will not distribute securities under a prospectus supplement. The Blanket Orders do not contain any annual confirmation requirements.

Calculation of Public Float: The Proposed Amendments retain the $500 million public equity threshold for an issuer to qualify as a WKSI. However, the methodology for calculating the public float is changed. Under the Blanket Orders, an issuer’s “public float” is the aggregate market value of the issuer’s equity securities held by persons or companies that are not affiliated parties of the issuer. The Proposed Amendments narrow this definition to also exclude securities held by reporting insiders of the issuer. Additionally, the Blanket Orders allow an issuer to calculate its public float using the closing price of its securities on any date during the 60-day period prior to filing the WKSI base shelf prospectus. The Proposed Amendments require an issuer to use the simple average of the daily closing price of its securities for each of the 20 trading days preceding the calculation date (which must be within 60 days of the date of filing the WKSI base shelf prospectus).

Amendments: While the Blanket Orders do not address amendments to WKSI base shelf prospectuses, the Proposed Amendments set out the requirements for an amendment to a WKSI base shelf prospectus and contemplate a deemed receipt for such amendments.

If you have any questions about the implications of the Proposed Amendments or their applicability to your business, please contact any member of our Corporate Finance and Securities Group.