CSA Proposes Amendments to Well-Known Seasoned Issuer Program

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 (“NI 44-102”) and certain other consequential amendments (the “Proposed Amendments”). The Proposed Amendments are intended to make permanent (with certain modifications) the expedited base shelf prospectus regime for well-known seasoned issuers (WKSIs) in Canada that has been in effect since January 2022 (see our December 10, 2021 Update, CSA Introduces Well-Known Seasoned Issuer Program) (the “WKSI Program”).

The public comment period for the Proposed Amendments will expire on December 20, 2023.

Background

The WKSI Program – which is modelled on the Well-Known Seasoned Issuer category of issuer adopted by the United States Securities and Exchange Commission in 2005 – was originally introduced as part of the CSA initiative to reduce the regulatory burden on Canadian reporting issuers. The WKSI Program has to date been implemented by way of temporary exemptions granted under blanket orders (the “Blanket Orders”) issued pursuant to CSA Staff Notice 44-306 – Blanket Orders Exempting Well-known Seasoned Issuers from Certain Prospectus Requirements that are substantially harmonized across Canada.

WKSI Program

Since the WKSI Program was introduced, issuers that satisfy certain eligibility criteria have not been required to file a preliminary base shelf prospectus or undergo a regulatory review for a base shelf prospectus filing and have also been exempt from certain of the disclosure requirements of a base shelf prospectus.

The Proposed Amendments generally align with the Blanket Orders in this regard, and specifically exempt issuers utilizing the WKSI Program from disclosing the following information in a base shelf prospectus:

• the aggregate dollar amount, and number of, securities qualified under the base shelf prospectus;
• a plan of distribution;
• a description of the securities being distributed; and
• any selling securityholders.

As is already the case under the Blanket Orders, the Proposed Amendments would also permit eligible issuers to issue an unlimited dollar amount of securities under the base shelf prospectus.

Eligibility

The eligibility criteria proposed by the Proposed Amendments generally align with the eligibility criteria contemplated by the Blanket Orders, with minor modifications. To be eligible to file a WKSI base shelf prospectus, an issuer must:

• be a WKSI;
• not be an investment fund; and
• be an “eligible issuer”.

A WKSI, as defined in the Proposed Amendments, is an issuer that:

• on at least one day during the preceding 60 days, had:
  • at least $500 million of qualifying public equity (i.e., listed securities excluding those held by an affiliate or reporting insider of the issuer); or
  • at least $1 billion of qualifying public debt (i.e., non-convertible debt securities distributed by the issuer under a prospectus for cash within the preceding three years);
• is and has been a reporting issuer in a jurisdiction of Canada for the preceding three years (a notable increase to the 12-month seasoning period under the Blanket Orders);
• is qualified to file a short form prospectus; and
• has no outstanding asset-backed securities.

In addition, issuers with mineral projects will only be considered WKSIs if the issuer’s most recent audited annual financial statements disclose certain minimum gross revenues derived from mining operations for prescribed financial periods.

To qualify as an “eligible issuer”, among other requirements, an issuer must be current with its continuous disclosure requirements and, during the preceding three years, must not have been (i) an issuer whose operations have ceased or whose principal asset is cash, cash equivalents or its exchange listing (e.g., SPAC or other shell issuers), or (ii) the subject of bankruptcy proceedings, a cease trade order or certain other regulatory sanctions or settlement agreements with securities regulators.

Other Notable Changes

If adopted, the Proposed Amendments would introduce certain other changes to the WKSI Program relative to the framework contemplated by the Blanket Orders:

• Annual Confirmation. The Proposed Amendments would require an issuer that has filed a WKSI base shelf prospectus to confirm on an annual basis (by way of a statement to that effect in its annual information form or an amendment to its WKSI base shelf prospectus) that it remains eligible to file a WKSI base shelf prospectus. This annual confirmation – which is not contemplated by the Blanket Orders – is intended to better align the WKSI Program with the WKSI regime in the United States, which includes an annual reassessment requirement.
• Automatic Receipt. The Proposed Amendments deem a receipt in respect of a WKSI base shelf prospectus to have been issued upon the filing of the WKSI base shelf prospectus together with any other required documentation. This “automatic receipt” mechanism should provide enhanced certainty regarding transaction timing relative to the existing framework under the Blanket Orders which, despite having eliminated any requirement to file a preliminary prospectus or undergo a regulatory review, still requires that a prospectus receipt be issued, which creates some timing uncertainty for issuers.
• Receipt Effectiveness. The Proposed Amendments provide that a deemed receipt for a WKSI base shelf prospectus will be effective until the earliest of (i) 37 months from the date of the deemed issuance, (ii) the date on which the issuer is required to file its audited annual financial statements, unless the issuer continues to be an eligible WKSI and has complied with the annual confirmation provision, and (iii) certain earlier lapse dates contemplated by NI 44-102. Accordingly, subject to continued eligibility, the Proposed Amendments would generally extend the period of receipt effectiveness for a WKSI base shelf prospectus a full 12 months beyond the typical 25-month period contemplated by NI 44-102.

For further information on the WKSI Program, please contact any member of our Capital Markets Group.