The Toronto Stock Exchange (TSX) has published for comment proposed amendments (the “Proposed Amendments”) to the TSX Company Manual (the “Manual”) that clarify when the TSX will apply its private placement rules to prospectus offerings. The Proposed Amendments are open for public comment until January 31, 2023.
Section 606 of the Manual sets out rules applicable to issuers proposing to distribute securities by way of a prospectus offering. Among other things, Section 606 requires issuers to provide the TSX with notice of a prospectus offering, including details of the offering. In reviewing the notice, the TSX determines whether the offering is a bona fide public offering. If a prospectus offering is not considered a bona fide public offering, the TSX will apply its more stringent private placement rules which, among other things, require shareholder approval for financings (a) completed at more than the maximum permitted discount (15% where the stock price exceeds $2.00), (b) resulting in dilution of more than 25% where the offering price is less than the “market price” (as defined by the Manual), and (c) to insiders that result in 10% dilution, when aggregated with prior insider financings completed over the past six months.
The Manual currently sets out the factors the TSX considers in determining whether a prospectus offering is a bona fide public offering, but does not provide details of how each factor ultimately affects the final determination. The Proposed Amendments intend to address that deficiency.
The TSX will now consider three factors when considering whether a prospectus offering is bona fide: (a) whether the offering has been broadly marketed; (b) the offering price; and (c) insider participation.
The Manual currently provides that a bona fide prospectus offering must be “broadly distributed” to at least 50 purchasers. The Proposed Amendments replace the concept of “broadly distributed” with “broadly marketed”, which is defined as an offering where the agent or underwriter either (i) distributes the offered securities to at least 50 purchasers; or (ii) makes the offer known to the selling group and/or equity capital markets desks at all Canadian investment dealers. The Proposed Amendments do not provide clarity on the meaning of “all Canadian investment dealers”.
The Manual currently lists “offering price” as a factor in determining whether a prospectus offering is bona fide, but does not state the acceptable level of discount. Historically, the TSX has taken the position that a discount of up to 10% was acceptable for a bona fide prospectus offering. The TSX acknowledged this may no longer be appropriate in the current financing market, and that more deference should be given to an issuer’s board of directors when pricing an arm’s length financing. Accordingly, under the Proposed Amendments, if a prospectus offering is broadly marketed and there is no insider participation, the TSX will accept the offering price, regardless of the discount.
The Proposed Amendments also establish that the new relevant reference price when calculating a discount is the closing price of the most recently completed trading session, rather than the five-day volume weighted average trading price.
Lastly, the Proposed Amendments state that, when insiders participate in a prospectus offering, the TSX will review the offering depending on the size of the discount offered and level of insider participation. If the offering is broadly marketed and priced within a 15% discount, insiders are able to participate up to their pro rata interest. Any insider participation beyond pro rata will be subject to the TSX’s private placement rules. If the offering discount is greater than 15%, the TSX will apply its private placement rules to all insider participation.
We believe the Proposed Amendments bring additional clarity to capital markets participants and should make the capital raising process (in particular bought deals and overnight marketed offerings) more efficient by reducing the need for pre-launch discussions with the TSX.
If you would like to discuss the Proposed Amendments or for any further information, please contact any member of our Capital Markets Group.
Mergers and AcquisitionsThe federal government is amending the requirements of the Canada Business Corporations Act (“CBCA”) relating to the beneficial ownership registry most private federal corporations are required to…
Capital MarketsOn November 16, 2023, the Canadian Securities Administrator (CSA) and the Investment Industry Regulatory Organization of Canada (now, the Canadian Investment Regulatory Association) (CIRO) published a…
TaxOn November 2, 2023, the Canada Revenue Agency (CRA) answered a series of questions as part of the Association de planification fiscal et financière’s annual conference in Quebec City that may have…
Ontario Securities Commission Clarifies Ground Rules for Confidential Disclosure of Material Non-Public InformationIn the recent decision of Kraft (Re), the Ontario Capital Markets Tribunal (the “Tribunal”) provided new guidance about when insiders and others can confidentially disclose material non-public…
Capital MarketsNeill May is a contributor to Canadian Lawyer magazine. This article first appeared in the October 2023 issue.Excerpt from "The never-ending debate about material changes in securities law":Even the…
REITS and Income SecuritiesStephen Pincus, Brenda Gosselin, and Bill Gorman have co-authored The Benefits of Canada - Cross Border and Foreign REITs in the third edition of The Legal Reviews Canada.To view the…
Capital MarketsGoodmans LLP acted for the underwriters in connection with a public offering by StorageVault Canada Inc. (“StorageVault”) of convertible senior unsecured debentures (the “Debentures”) on a bought deal…
Capital MarketsGoodmans LLP acted for E Automotive Inc. d/b/a EINC in its non-brokered private placement offering of 4,814,100 common shares ("Shares') to Intercap Equity Inc. at a price of C$4.23 per Share for…
Capital MarketsGoodmans LLP acted for Northwest Healthcare Properties Real Estate Investment Trust (the "REIT") in connection with the renewal of its existing base shelf prospectus and filing and obtaining a receipt…
Capital MarketsGoodmans LLP acted for Northwest Healthcare Properties Real Estate Investment Trust (the "REIT") in connection with a public offering whereby the REIT sold C$135 million aggregate principal amount of…
Capital MarketsGoodmans LLP acted for the syndicate of agents led by CIBC World Markets Inc., in connection with a public offering of C$1 billion aggregate principal amount of medium-term notes of Brookfield…
Capital MarketsGoodmans LLP acted for a syndicate of agents led by BMO Nesbitt Burns Inc., on the sale by Brookfield Renewable of C$400 million aggregate principal amount of medium-term notes, Series 15, due…
News & Events
Banking and Financial ServicesWe are pleased to share Goodmans lawyers have been recognized across Who's Who Legal's National Guide: Canada 2023. WWL National Guides identify national or regional leaders in a sector, industry…
Banking and Financial ServicesWe are pleased to announce Goodmans LLP has once again received top tier recognition from The Legal 500 Canada in their 2024 Guide released today. Recognition from The Legal 500 is based on…
Banking and Financial ServicesWe’re pleased to announce Goodmans was once again named to The Globe and Mail’s Canada’s Best Law Firms list, recognizing us as one of the country’s best law firms for 2024.Goodmans was…