Canadian securities regulators have published proposed changes to the rules governing the shelf prospectus regime for a 90-day comment period. The proposed rules have two key objectives: reducing unnecessary regulatory burden for well-known seasoned issuers (referred to as WKSIs) and fostering capital formation by such issuers in the Canadian public markets.
Three key enhancements drive the proposed rules: (i) the ability for a WKSI to make prospectus offerings with no regulatory review; (ii) the extension of the validity period for a base shelf prospectus from 25 to 37 months; and (iii) the ability to omit certain information from the base shelf prospectus, including the aggregate amount of securities that may be offered. The proposed rules are modeled after the corresponding filing framework in the United States, improving the alignment of timelines for, and better facilitating, cross-border offerings.
The United States has had a WKSI program for many years. Mature corporations in the United States actively pursue WKSI status to permit them to conduct expedited securities offerings.
Following extensive consultation and support from Canadian issuers to implement a similar offering model, Canadian securities regulators launched a pilot program in January of 2022 that provided eligible WKSIs with a temporary exemption (through blanket orders) from certain base shelf prospectus requirements. The proposed rules would replace this temporary regime and formalize, among other things, a streamlining of the shelf prospectus process to permit eligible WKSIs to make a single filing of a final base shelf prospectus.
What are the proposed WKSI rules?
The proposed rules aim to reduce unnecessary regulatory burden for WKSIs, which are sizeable and well-established issuers, known for their substantial market presence and comprehensive public disclosure records. Under the proposed rules, eligible WKSIs would be able to:
- Forego the filing of a preliminary base shelf prospectus (which would typically undergo regulatory review);
- File a final base shelf prospectus that is immediately effective through the deemed issuance of a receipt;
- Conduct offerings under the base shelf prospectus for up to 37 months, rather than the current period of 25 months; and
- Omit certain disclosure from the base shelf prospectus, including the aggregate dollar amount of securities that may be raised under the prospectus.
In exchange for the extended validity of the final base shelf prospectus, eligible WKSIs would need to annually re-confirm their eligibility. If an issuer were to no longer meet the eligibility criteria, it would be required to withdraw its WKSI base shelf prospectus and publicly announce that it will no longer distribute securities under that prospectus.
Who is eligible?
The proposed rules include two components of eligibility criteria that non-investment fund issuers must satisfy to make use of the streamlined regime.
First, an issuer must be a WKSI. To qualify as a WKSI, an issuer must:
- On at least one day during the preceding 60 days, have had qualifying public equity of at least C$500,000,000, or qualifying public debt of at least C$1,000,000,000;
- Be and have been a reporting issuer in a jurisdiction of Canada for the preceding 3 years;
- Be otherwise qualified to file a short form prospectus under Canadian short form prospectus rules;
- Meet certain additional requirements if it has a mineral project; and
- Have no outstanding asset-backed securities.
Second, a WKSI must further qualify as an eligible issuer by meeting the following requirements:
- All requisite periodic and timely disclosure documents must have been filed; and
- During the preceding three years:
- The issuer (and any person or company that completed a restructuring transaction with the issuer) (i) must have not ceased operations; and (ii) must have not had as a principal asset cash, cash equivalents or its exchange listing;
- The issuer must have not become bankrupt nor made a proposal in bankruptcy or insolvency nor been subject to or instituted any proceeding, arrangement or compromise with creditors nor been subject to a receivership;
- The issuer, and its subsidiaries, must have not been the subject of an order, judgment, decree, sanction or administrative penalty imposed by, or entered into a settlement agreement with or approved by, a court in Canada or a foreign jurisdiction, or a securities regulatory authority or a 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; and
- The issuer must have not been the subject of (i) a cease trade order or similar order in a jurisdiction of Canada; or (ii) a suspension of trading in the United States.
The proposed rules have been published by Canadian securities regulators for a 90-day comment period, ending on December 20, 2023. We invite you to contact a member of our Capital Markets team if you would like to learn more about the proposed WKSI regime in Canada.