It has been over two months since the Canadian Securities Administrators (CSA) published final amendments (Amendments) to National Instrument 44-102 Shelf Distributions (NI 44-102) and its related companion policy that will streamline at-the-market (ATM) offerings in Canada. Provided all necessary ministerial approvals are obtained, the Amendments will become effective on August 31, 2020 (Effective Date).
An ATM offering allows an issuer to periodically sell equity securities into the market at market prices through one or more registered securities dealers, all pursuant to a base shelf prospectus and prospectus supplement. Sales under an ATM offering are analogous to ordinary brokerage transactions, where an investor instructs his or her broker to sell shares through a stock exchange. Issuers have typically used ATM offerings to issue equity securities in small increments for balance sheet management, or if market conditions render other follow-on equity financing alternatives less attractive or achievable (which may only be heightened with the COVID-19 pandemic).
ATM offerings by their nature create certain impracticalities under the current securities legislative regime and thus require issuers to seek exemptive relief as a prerequisite to launching such an offering. The CSA have focused their attention on reducing these regulatory burdens on non-investment fund issuers. As further described below, the Amendments achieve this objective by, among other things, eliminating the significant up-front time and costs of obtaining the Exemptive Relief (as defined below), which was granted as a matter of course.
Key changes to the ATM offering regime
Set out below are certain of the key changes to the ATM offering regime addressed by the Amendments:
||Issuers are required to obtain regulatory exemptive relief (Exemptive Relief) from certain provisions of securities legislation that are not practical for an ATM offering, including: (a) the requirement to deliver a prospectus to purchasers; (b) withdrawal and rescission rights, which are modified to reflect, among other things, the impact of non-delivery of the ATM prospectus; and (c) prospectus form changes, which are modified to reflect the periodic distribution of securities and the full, true and plain disclosure of all material facts relating to the securities being offered as at such times.
||Removal of requirement for issuers to obtain Exemptive Relief to complete an ATM offering – the relief will be codified directly into NI 44-102.
|10% aggregate cap
||The overall size of an ATM offering cannot be more than 10% of the aggregate market value of the offered class of equity securities, subject to certain adjustments (10% Aggregate Cap).
||Removal of 10% Aggregate Cap.(1)
|25% daily cap
||The aggregate number of equity securities that may be sold on one or more Canadian marketplaces on any trading day under an ATM offering must not exceed 25% of the trading volume of the equity securities on all Canadian marketplaces on that day (25% Daily Cap).
||Removal of 25% Daily Cap.(1)
||Issuers must file a report on SEDAR containing details of the distributions made under the ATM offering within seven days after each month in which a distribution occurred.
||Issuers can disclose details of ATM distributions either: (a) within 60 days of an interim period or 120 days of an annual period in a standalone report; or (b) in their interim and annual financial statements and MD&A.
|“Designated News Release”
||If an issuer has an ATM program in place, and, during the course of the ATM program, circumstances occur that constitute a material fact for the issuer’s business, the issuer is required to file a prospectus supplement or an amended prospectus to ensure that the ATM prospectus continues to contain full, true and plain disclosure regarding the securities distributed.
||An issuer can issue a “designated news release” (by identifying it as such on the face page of the news release) disclosing the material fact, which will then be incorporated by reference into the ATM prospectus. (An ATM prospectus would also include a general statement that any “designated news releases” will be deemed to be incorporated by reference into such prospectus.)(2)
|Base shelf prospectus cover page disclosure
||An issuer is required to disclose on the cover page of its base shelf prospectus that the prospectus may qualify an ATM distribution.(3)
(1) There is still an expectation that issuers will not conduct ATM offerings that will have a material impact on the market price of their securities – which was the rationale for originally imposing these limits.
(2) The “designated news release” mechanic has been a feature of most of the recent Exemptive Relief decisions for ATM offerings.
(3) Base shelf prospectuses filed prior to the Effective Date and for which Exemptive Relief was obtained are not required to satisfy this prescriptive disclosure requirement.
Prospectuses filed prior to the Effective Date
The Amendments are silent on how they will impact ATM offerings launched prior to Effective Date, especially as they relate to the removal of the 25% Daily Cap and the 10% Aggregate Cap. Unless the CSA provide further guidance on this matter or unless an issuer files an amended or amended and restated prospectus supplement following the Effective Date, the 25% Daily Cap and 10% Aggregate Cap will still apply to any such ATM offering. This would be the case for up to 25 months, being the maximum effective period of a base shelf prospectus. As such, issuers may pause launching ATM offerings in Canada in the month of August 2020, and wait the additional period to benefit from the Amendments.
In the period leading up to the Effective Date, the market may see an influx of issuers getting ready to launch an ATM offering, with filings of new or amended and restated base shelf prospectuses (where the base shelf prospectus wasn’t previously filed in every jurisdiction of Canada), such that, come early September, issuers will be in a position to launch ATM offerings to take advantage of a less regulated and costly process that offers greater potential capital raising opportunities.
The Amendments highlight the requirement that an issuer must file a prospectus (including the base shelf prospectus and prospectus supplement) in each jurisdiction in which a distribution will occur. Given that purchases in an ATM offering are made directly on a stock exchange, it is difficult to determine where a distribution will occur. As a result, it is possible that purchasers under an ATM offering can be located in any jurisdiction of Canada, and so both the base shelf prospectus and the prospectus supplement must be filed in each province and territory of Canada.
French translation requirement
Where an issuer offers securities to Québec purchasers in connection with an offering, it must translate the offering documents into French. As noted above, because sales under an ATM offering are executed over stock exchanges, typically anonymously, it is possible that sales will be made in Québec. The Amendments do not provide relief from the requirement for issuers to translate the offering documents into French, despite certain stakeholders advocating for such relief to be included in the new regime. The CSA have noted that the securities commission in Québec, being the Autorité des marchés financiers (AMF), will, where appropriate, grant relief from the obligation to translate the base shelf prospectus, prospectus supplement and documents incorporated by reference therein (collectively, ATM Offering Documents) subject to appropriate conditions. In our experience, the conditions to granting such relief are likely to include that the ATM Offering Documents be translated into French if the issuer offers securities to Québec purchasers in connection with a non-ATM offering.
Post June 4, 2020 ATM prospectus filings in Canada
Since the announcement of the Amendments, we have observed ATM offerings being launched by the following public companies in Canada:
- Oncolytics Biotech Inc.
- HEXO Corp.
- Galiano Gold Inc.
- Vista Gold Corp.
- MAG Silver Corp.
- FSD Pharma Inc.
- Aphria Inc.
All of the aforementioned issuers are dual-listed in Canada and in the United States. However, with the exception of HEXO Corp. and Aphria Inc. (perhaps coincidentally both in the cannabis space), none of these issuers are selling shares under their respective ATM offerings in Canada. Each of these issuers may have a myriad of reasons to conduct their ATM offerings in the United States only. It is conceivable that the current Canadian regime is one of the reasons as the regime may leave issuers unable to justify the extra time and resources required for an ATM offering in Canada especially when considering the restrictions on the size and volume of such offering (i.e., 10% Aggregate Cap and 25% Daily Cap) – concerns the Amendments intend to address.
Anticipated effect of the Amendments
Market participants often view ATM offerings as an underutilized resource to raise capital in Canada. The Amendments, however, create a Canadian framework to compete with the more issuer-friendly regime in the United States, which we believe will result in the increased use by issuers of ATM offerings in Canada.