The “bought deal” is a well-known means for mining companies to access the Canadian equity capital markets in a way that balances the business goals of achieving reasonable pricing for the company’s shares and deal certainty. In a bought deal, one or more investment banks makes a commitment to a company to buy a specified number of the company’s shares at a fixed price, taking on the risk of re-selling the shares to investors without having done any advance marketing of the offering. The offering price is typically a discount to the current market price of the company’s shares. Not surprisingly, recently these discounts have been larger than usual, given current market conditions.
To successfully sell a bought deal, investment banks in Canada typically rely on a relatively small number of institutional investors to purchase the majority (or, sometimes all) of the shares being offered. In many cases, investment banks will also want to have the ability to offer the company’s shares to investors in the United States.
Rule 144A Offering
By far the most common means of extending a Canadian bought deal to investors in the United States is by doing what is referred to as a concurrent “Rule 144A” offering. This involves the investment banks re-selling the shares to U.S. institutional investors – called “QIBS” or qualified institutional buyers – without preparing a U.S. prospectus or registration statement that would be subject to review by the Securities and Exchange Commission (SEC). This process is quite straightforward and typically adds only an incremental cost to a bought deal when only limited U.S. sales are contemplated and the investment banks are comfortable with not obtaining a negative assurance letter (or 10b-5 opinion) from U.S. counsel addressing the disclosure in the Canadian prospectus.
Multijurisdictional Disclosure System
However, sometimes there is a marketing case for offering a Canadian company’s shares in the United States to a broader and deeper range of institutional and retail investors than may be available in Canada, especially if the company is already a public company in the United States. In these situations, the company will need to undertake a registered public offering in the United States using a registration statement filed with the SEC. For many Canadian companies, the most efficient and relatively cost-effective means to do this will be using what is referred to as the “Multijurisdictional Disclosure System” (MJDS).
MJDS is a way for eligible Canadian companies to offer shares by way of a public offering in the United States, but relying only on Canadian securities regulators for review of their disclosure documents. While a registration statement is filed with the SEC, it is a relatively short document that is “wrapped around” the issuer’s Canadian prospectus. A U.S. version of the issuer’s prospectus is also prepared for marketing purposes, but there are usually only a few minor differences between the U.S. version and the Canadian version. The issuer will have to prepare a U.S. GAAP reconciliation of its financial statements and a negative assurance letter (10b-5 opinion) will be required. Although the SEC reserves the right to review an MJDS registration statement, it will generally not do so except possibly to confirm that the issuer is eligible to use MJDS and to confirm compliance with applicable U.S. GAAP reconciliation requirements. Like any registration statement, filing an MJDS registration statement will make the company subject to ongoing SEC reporting obligations and compliance with the Sarbanes-Oxley Act of 2002, if the company is not already subject to them.
While extending a bought deal to investors in the United States using MJDS may have benefits from a marketing perspective, mining companies thinking of following this path should allow for much greater lead time prior to launching a bought deal using MJDS than would usually be required in the case of a regular bought deal. Companies should have discussions with their lead investment bankers well in advance of a potential launch to ensure smooth execution.
Osler has recently advised on two mining company MJDS bought deals: Cameco Corporation in its $459,000,000 offering of common shares and Kinross Gold Corporation in its US$414,000,000 offering of common shares.