In an effort to reduce the regulatory burden for issuers who wish to conduct “at-the-market” (“ATM”) offerings in Canada and facilitate capital raising by public companies, the Canadian Securities Administrators (the “CSA”) announced significant amendments (the “Amendments”) to the ATM distribution regime under National Instrument 44-102 – Shelf Distributions (“NI 44-102”) and Companion Policy 44-102CP. Notably, the Amendments, which will become effective on August 31, 2020, will streamline the process for ATM offerings in Canada. Going forward, issuers commencing an ATM offering will no longer have to apply for and obtain exemptive regulatory relief or be subject to the limitations on (i) overall ATM offering size under a single prospectus supplement (which the current regime limits to 10% of an issuer’s market capitalization at the time of the ATM launch (the “10% Aggregate Cap”)), or (ii) the aggregate number of a class of securities that can be distributed on any trading day (which the current regime restricts to 25% of an issuer’s average daily trading volume of that class (the “25% Daily Cap”)).
ATMs – An Overview
An ATM offering is a distribution of equity securities (typically common shares) at variable market prices that is qualified by a base shelf prospectus and prospectus supplement under the shelf offering procedures of NI 44-102. Through an ATM offering, an issuer may, from time to time, on an as-needed basis, sell its securities at the prevailing market price into a pre-existing trading market in which securities of the same class are traded. Sales of securities under an ATM offering are effected by one or more registered securities dealer(s) engaged by the issuer to act as its agent(s).
ATM offerings can be an effective capital raising alternative for issuers, as they: (i) allow issuers to sell securities into an existing market, typically at no discount to the current market price; (ii) offer quick access to capital, on an ongoing basis, in line with an issuer’s financing needs; (iii) allow issuers to capitalize on favourable market conditions; (iv) are typically subject to lower commissions, fees and expenses than traditional offerings; (v) do not require road shows or marketing, thereby allow management to continue to focus on the business; and (vi) give issuers more discretion as to the size, price, timing and terms of the offering.
Although the current regime under NI 44-102 permits ATM distributions, in order to conduct an ATM offering in Canada issuers first needed to apply (on a case-by-case basis) for exemptive relief from the Canadian securities regulators as it is impracticable for issuers and dealers to comply with certain requirements under applicable securities laws, including:
- the requirement to deliver a prospectus to purchasers (the “Delivery Requirement”);
- disclosure of certain modified withdrawal and rescission rights and certification requirements (the “Form Requirements”); and
- the requirement to publicly disclose the number and average price of the securities distributed under the ATM offering and the aggregate gross and net proceeds raised and aggregate commissions paid or payable on a monthly basis (the “Monthly Reporting Requirement”).
ATM offerings have historically required French translations of the base shelf prospectus, applicable ATM offering prospectus supplement and all documents incorporated by reference. The Amendments do not provide issuers relief from the French translation requirement, however, an application to the Autorité des marchés financiers can be made to obtain exemptive relief from the French translation requirements in connection with an ATM offering.
When the Amendments take effect on August 31, 2020 they will, among other things, codify certain standard terms that are typically included in ATM exemptive relief orders. As a result, issuers will not have to apply for exemptive relief to conduct ATM offerings in Canada.
In particular, the Amendments will make the following changes to the Canadian ATM offering regime:
- Delivery Requirement – The Delivery Requirement will not apply in connection with a distribution of securities under an ATM offering.
- Form Requirements – The Form Requirements for ATM offerings to include: (i) specified “forward-looking” certificates, to be included in the base shelf prospectus or applicable prospectus supplement and (ii) modified form of statement of rights
- Reporting Obligations – The Monthly Reporting Requirement is replaced with a new quarterly reporting requirement, pursuant to which issuers conducting an ATM offering must disclose the number and average price of the securities distributed under the ATM offering and the aggregate gross and net proceeds raised and aggregate commissions paid or payable by either: (i) filing a standalone report within 60 days after the end of each applicable interim period or 120 days after the end of each applicable annual period; or (ii) including such disclosure in their interim and annual financial statements and related management discussion and analysis.
- Limits on Offering Size and Trading Volume – ATM offerings will not be subject to the 25% Daily Cap and 10% Aggregate Cap. Notwithstanding the removal of these limitations, the CSA has advised that they will continue monitoring ATM offerings, focusing on distributions that may have had a material impact on the price of the issuer’s securities where prior public disclosure of the distribution was made, and expect issuers and dealers to conduct ATM offerings in a manner that limits any negative impact on market integrity.
- Additional Disclosure Obligations – To ensure the applicable prospectus contains full, true and plain disclosure of all material facts relating to the securities distributed under the ATM offering, issuers may incorporate new material facts into the prospectus by disseminating a news release disclosing information that, in the issuer’s determination constitutes a “material fact”, provided that such news release is identified on its face page as a “designated news release”. Similarly, a prospectus for an ATM offering should disclose that any such designated news release will be deemed to be incorporated by reference therein.
- Investment Funds – All (i) non-redeemable investment funds and exchange traded mutual funds that are not in continuous distribution, and (ii) all mutual funds that are traded on an exchange that are in continuous distribution and meet the definition of an “ETF” in National Instrument 41-101 – General Prospectus Requirements, will now be permitted to conduct ATM offerings.
By reducing the time and cost required to implement an ATM offering in Canada, the Amendments stand to make ATM offerings a more accessible and attractive capital raising alternative for Canadian issuers. As such, we expect to see more Canadian issuers using ATM offerings as a way to raise supplemental capital once the Amendments come into effect.
Historically, ATM offerings have been more popular in the United States than Canada and cross listed issuers typically relied on the United States markets to complete ATM programs. This is attributable, in part, to the more favourable regulatory framework that exists in the United States. The Amendments help align the Canadian and United States’ regimes which should facilitate cross-border ATM offerings, allowing issuers to capitalize on favourable market conditions and access capital in both markets.
Issuers with a base shelf prospectus filed prior August 31, 2020 under which the issuer is qualified to make an ATM distribution pursuant to an exemptive relief order will not have to re-file their base shelf prospectus to comply with the Amendments. Issuers will be permitted to rely upon the more lenient framework prescribed by the Amendments through the filing of an ATM prospectus supplement or an amended and restated ATM prospectus supplement (in the case of an existing ATM offering). If you have any questions regarding the Amendments or ATM offerings in general, please feel free to contact either of the authors.