Canadian securities regulators launch pilot WKSI program

The Canadian Securities Administrators (CSA) have adopted temporary exemptions that, effective January 4, 2022, will exempt qualifying well-known seasoned issuers (WKSIs) that satisfy certain conditions from the requirement to file and obtain a receipt for a preliminary base shelf prospectus, making it faster and more efficient for these issuers to raise capital in Canada¹.

What you need to know

• To qualify as a WKSI, an issuer must have outstanding listed equity securities that have a public float of C$500 million or at least C$1 billion aggregate amount of non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash in the last three years.
• The exemptions will allow an issuer that meets WKSI qualifications and satisfies certain conditions to file a final base shelf prospectus with its principal regulator and obtain a receipt on an accelerated basis (generally on the same or next business day) without first filing a preliminary base shelf prospectus. This is in contrast to the current regime where issuers often budget between five to ten working days for completion of regulatory review and clearance for a final base shelf prospectus.
• WKSIs will be permitted to issue an unlimited dollar amount of securities under the base shelf prospectus and will no longer be required to disclose the aggregate dollar amount or number of securities that may be raised under the base shelf prospectus.
• The exemptions are similar to the WKSI regime in the United States, which is available to issuers with outstanding listed equity securities that have a public float of at least US$700 million.
• The CSA has indicated this is a pilot project that will assist it in evaluating the appropriateness of the eligibility criteria and conditions, and identifying any potential public interest concerns that should be addressed in any future rule amendments to implement a Canadian WKSI regime.

Eligibility criteria and conditions to the exemptions

The CSA defines a WKSI as an issuer that either has outstanding listed equity securities with a public float of C$500 million or at least C$1 billion aggregate amount of non-convertible securities, other than equity securities, distributed under a prospectus in primary offerings for cash in the last three years. To be eligible, an issuer must be, and have been, a reporting issuer in at least one Canadian jurisdiction for at least 12 months and meet the definition of a WKSI as of a date within 60 days preceding the date it files the base shelf prospectus.

Some issuers that meet the definition of WKSI, however, will not be eligible to rely on the exemptions, including investment funds, issuers with outstanding asset-backed securities or that seek to qualify the distribution of asset-backed securities under the short form prospectus, and “ineligible issuers”. An ineligible issuer includes any issuer that has not filed all the periodic and timely disclosure documents it is required to have filed, an issuer whose operations have ceased or whose principal assets are cash or an exchange listing (e.g., a capital pool company), and/or an issuer that has been bankrupt, subject to penalties or sanctions under securities legislation, or subject to a cease-trade order.

Issuers with mining operations must meet additional financial criteria—they must have gross revenue derived from mining operations of at least C$55 million for the most recently completed financial year and gross revenue derived from mining operations of at least C$165 million in the aggregate for the issuer’s three most recently completed financial years.

Scope and duration of exemptions

In addition to being exempt from the requirement to file and clear a preliminary base shelf prospectus, WKSIs that satisfy the prescribed conditions will also be exempt from the requirements to:

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

Some of the exemption orders adopted by CSA members include a “sunset clause”, providing that the exemptions will expire on the earlier of July 4, 2023 (unless extended) and the effective date of an amendment to National Instrument 44-102 Shelf Distributions that addresses the same subject matter as the exemption order.

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