The Canadian Securities Administrators (CSA) have announced that a revised rights offering regime for reporting issuers will come into force on December 8, 2015 (the New Rules). The New Rules will benefit reporting issuers seeking to raise capital from existing securityholders by:
- shortening the timeframe for completion of a rights offering;
- implifying securities regulatory filings through a new reader-friendly Q&A format;
- eliminating the need for regulatory approvals;
- permitting the issuance of up to 100 percent of the outstanding number of securities (or principal amount, in the case of debt securities) in a 12-month period; and
- reducing legal, printing and distribution costs of securities regulatory filings.
Rights offerings are a financing structure where existing securityholders are given a preferential right to purchase additional securities of an issuer in order to maintain their pro rata ownership of such issuer.
Reporting issuers and market participants frequently point to the cost and lengthy regulatory review process as barriers to undertaking rights offerings in Canada. In responding to these concerns, the CSA proposed amendments to the rights offering regime and circulated a Notice and Request for Comment on November 27, 2014. The New Rules were finalized on September 24, 2015, and are scheduled to come into force on December 8, 2015.
Rights Offerings under the New Rules
The New Rules will be incorporated into the existing prospectus exemption rules under National Instrument 45-106 – Prospectus Exemptions of the Canadian Securities Administrators (NI 45-106). Reporting issuers (other than investment funds) who have filed all applicable periodic and timely disclosure documents are eligible to rely on the New Rules in completing a rights offering.
The streamlined process for rights offerings under the New Rules is set out below:
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Permitted Offering Terms
Rights offerings under the New Rules must comply with the following terms:
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Secondary Market Liability and Investor Protection Changes
Under the New Rules, investors will be given a statutory right of action for damages resulting from any misrepresentation in an issuer's continuous disclosure record (including misrepresentation in an Offering Circular).
The New Rules remove the ability of non-reporting issuers to complete a prospectus-exempt rights offering.
In addition, the New Rules allow a foreign issuer to complete a rights offering in Canada if, to its knowledge, all securityholders resident anywhere in Canada constitute 10 percent or less of all holders of the applicable class of securities.
The TSX and TSX-V have not yet announced changes to their respective rights offering regimes in light of the New Rules; however, we will continue to monitor developments and will provide updates as appropriate. Bennett Jones would be pleased to work with your business in determining how best to leverage the New Rules and facilitate a successful rights offering to your existing securityholders.