The Canadian Securities Administrators (CSA) have published final amendments to National Instrument 44-102 Shelf Distributions (NI 44-102) that will streamline “at-the-market” (ATM) equity distributions in Canada effective August 31, 2020 (the amendments).
An ATM distribution is a form of prospectus offering that enables an issuer to periodically sell equity securities directly into the market at current market prices through a registered dealer who acts as a “placement agent” on behalf of the issuer. In an ATM distribution, neither the dealer nor the issuer engages in any special marketing efforts. Rather, each issuance under an ATM distribution is analogous to an ordinary brokerage transaction. An issuer will typically use an ATM program to issue equity securities in small increments for normal course balance sheet management purposes or if market conditions render other follow-on equity financing alternatives less attractive.
As a result of the amendments, the CSA will make the following changes to the historical ATM distribution regime effective August 31, 2020:
The amendments do not address French translation requirements. Accordingly, issuers who are interested in implementing an ATM program, but would not otherwise seek to qualify their base shelf prospectus in the province of Québec, will continue to be required to obtain exemptive relief from the Québec securities regulators in respect of the translation requirements in connection with an ATM program.
As the COVID-19 pandemic continues, stock market volatility may present periodic market windows that quickly close. Issuers that want to be in a position to opportunistically access the equity markets on short notice will be well-served to consider the adoption of an ATM program.
Development-stage issuers and issuers with limited capital resources that are planning to establish an ATM program should consider their eligibility to file and clear a shelf prospectus, with regard to their current cash position and their short-term liquidity (without giving effect to any potential ATM program proceeds).
The amendments align the Canadian ATM distribution rules more closely to the existing ATM distribution regime in the United States. Accordingly, cross-listed issuers that desire the flexibility to access U.S. equity markets may also want to explore establishing a cross-border ATM program. If sales under an ATM program are to be made in the United States, however, it is important to note that the U.S. dealers will want to follow the same sorts of procedures as they would follow in any other registered U.S. public offering, namely conducting due diligence (which may be updated periodically), and receiving “comfort letters” from the issuer’s auditors and “10b-5”, or negative assurance, letters from the issuer’s counsel.
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