Effective January 4, 2022, pursuant to local blanket orders adopted by the Canadian Securities Administrators (the CSA), qualifying well-known seasoned issuers (WKSIs) in Canada will be temporarily exempt from certain base shelf prospectus filing requirements, including the requirement to file a preliminary base shelf prospectus (the WKSI Framework). As a result, a final short form base shelf prospectus may be the first public step in an offering for a WKSI. Additionally, WKSIs will be provided with relief from certain base shelf prospectus disclosure requirements.

Well-known seasoned issuer definition and qualifications

Issuers that meet the WKSI definition and qualifications will be able to take advantage of the WKSI Framework.

A WKSI is an issuer that has either of the following:

• Outstanding listed equity securities that have a public float of CA$500 million (the definition of public float, that will most commonly apply, is the aggregate market value of the securities of the issuer held by persons or companies that are not affiliated parties of the issuer); or
• At least CA$1 billion aggregate amount of non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash, not exchange, in the last three years.

To rely on the WKSI Framework, issuers will need to satisfy all of the following qualifications (the WKSI Criteria):

• Meet the definition of a WKSI as of a date within 60 days preceding the date of filing the base shelf prospectus;
• Be and have been a reporting issuer in at least one jurisdiction of Canada for 12 months;
• Be eligible to file a short form prospectus under National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101);
• Satisfy the requirements to be qualified to file a short form prospectus under NI 44-101, including, having filed a notice declaring its intention to be qualified to file a short form prospectus at least 10 business days prior;
• Not be an “ineligible issuer” (which would include, generally, issuers who are in default of their continuous disclosure obligations, have ceased operations, have in the last three years become bankrupt, were subject to a cease trade order, sanction or penalty, or have cash or cash equivalents as their principal asset);
• Not be an investment fund;
• Not have outstanding asset-backed securities;
• Pay the fee otherwise required for the filing of a preliminary short form prospectus; and
• Deliver the personal information forms required under NI 44-101.

Under the WKSI Framework, the base shelf prospectus must comply with the requirements of National Instrument 41-101 General Prospectus Requirements, NI 44-101 and NI 44-102 Shelf Distributions (NI 44-102). The base shelf prospectus may not qualify the distribution of any asset-backed security, and must include certain prescribed disclosure on the cover page of the prospectus, including confirming that the issuer qualifies as a WKSI and the date of such determination.

Furthermore, to rely on the blanket orders, if the issuer has mining operations, its most recent audited financial statements must disclose gross revenue, derived from mining operations, of at least: (i) CA$55 million for the issuer’s most recently completed financial year; and (ii) CA$165 million in the aggregate for the issuer’s three most recently completed financial years (collectively, the Mining Revenue Criteria). The issuer must also 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.

WKSI letter

To rely on the blanket orders an issuer must file a letter that: (i) is dated as of the date of the base shelf prospectus and is executed by an executive officer or director; (ii) sets out, as applicable, the public float of outstanding listed equity securities or aggregate amount of non-convertible securities, other than equity securities, that the issuer has distributed under a prospectus within the last three years that satisfy the definition of a WKSI and the date of that determination; (iii) describes the basis on which the issuer satisfies the Mining Revenue Criteria if the issuer has mining operations; (iv) specifies the qualification criteria the issuer is relying on to satisfy the eligibility requirements for filing a short form prospectus; and (v) states that the issuer is relying on the blanket orders and certifies the satisfaction of the WKSI Criteria.

Exemptions from certain prospectus requirements

Provided the issuer meets the definition of a WKSI and satisfies the WKSI Criteria, the issuer will be exempt from the following requirements (in addition to obtaining a receipt for a preliminary base shelf prospectus):

• To limit distributions under the base shelf prospectus to the dollar value that the issuer reasonably expects to distribute within 25 months after the date of the receipt for the base shelf prospectus;
• To state the aggregate dollar amount of securities that may be raised under the base shelf prospectus;
• To state the number of securities qualified for distribution under the base shelf prospectus;
• To include a plan of distribution in the base shelf prospectus, other than to indicate that the plan of distribution will be described in the supplement for any distribution of securities;
• To describe the securities being distributed under the base shelf prospectus, other than as necessary to identify the types of securities qualified for distribution under the base shelf prospectus; and
• To describe any selling securityholders in the base shelf prospectus.

Expiry of the blanket orders and the future for WKSI relief

The WKSI Framework is a temporary measure and will expire on the earlier of: (i) July 4, 2023 (unless extended by the CSA) and (ii) the effective date of an amendment to NI 44-102, that addresses substantially the same subject matters as the blanket orders. The blanket orders, provide the CSA a trial run to test the WKSI regime as it relates to base shelf prospectuses.

The CSA will be provided the opportunity to evaluate the appropriateness of the eligibility criteria and identify any potential public interest concerns or operational considerations that should be addressed in future rule amendments. The CSA is considering whether future rule amendments to implement a permanent Canadian WKSI regime are appropriate and any such amendments will be adopted by the CSA through the normal rule-making procedures on a coordinated basis.

Dentons insight

The WKSI Framework is a welcome development as it provides quicker access to the public markets for larger, more seasoned Canadian reporting issuers. It was developed in response to feedback received by the CSA in relation to its Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers that certain prospectus requirements in the base shelf context create unnecessary regulatory burden for large, established reporting issuers that have a strong market following and up-to-date disclosure records. It will allow issuers to take advantage of a strong capital market and offer further securities without amending or refiling a prospectus. The reduced regulatory burden – both in terms of not having to file a preliminary base shelf prospectus and not having to amend or refile a prospectus when, for example, there is an adjustment that needs to be made to the aggregate dollar amount of securities that may be raised – will enable greater efficiency of the Canadian capital markets, while still protecting the public through, among other things, the high hurdles that must be overcome to qualify as a WKSI. The accelerated timeline for obtaining a receipt for a base shelf prospectus, as well as the exemption from filing a preliminary base shelf prospectus, may also reduce the overhang risk typically associated with filing traditional, unallocated base shelf prospectuses.

The blanket orders may particularly benefit dual-listed issuers by more closely aligning the Canadian shelf prospectus and US shelf registration statement regimes for WKSIs. However, some differences between the United States and Canadian regimes remain, and not all Canadian WKSIs that may be able to rely on the blanket orders will necessarily be US WKSIs due to the difference in public float requirements.¹ As a result, not all dual-listed issuers will be able to access the streamlined base shelf prospectus processes available to WKSIs in both countries.

Unlike under the WKSI Framework, a registration statement filed under the US WKSI rules becomes automatically effective upon filing. Automatic effectiveness under the US WKSI rules provides certainty as to timing and enables a concurrent launch of an offering. Under the WKSI Framework, in the ordinary course, if the base shelf prospectus is filed before noon, local time, the accelerated procedures will permit the receipt to be issued on the same business day, and if filed after noon, before noon the next business day. The receipt requirement enables principal regulators to delay issuing a receipt beyond the ordinary course timing whether due to processing delays or the exercise of the discretion to perform a more than purely administrative review. As the CSA considers future rule amendments and a permanent WKSI regime, automatic effectiveness upon filing may be an avenue worth exploring to further streamline the offering process for dual-listed issuers and provide certainty to all qualifying WKSIs.

For further details, please see the following local blanket orders:

Should you have any questions about the WKSI Framework, please do not hesitate to contact co-authors Ora Wexler, Ben Iscoe, Ellery O’ Hara or any member of Dentons Canada’s Securities and Corporate Finance group.

¹ The WKSI Framework requires a public float of at least CA$500 million, whereas a US WKSI must have a public float of at least US$700 million.