Review of Streamlined Offering Exemption Shows Improved Access to Capital, But Issues Remain

August 27, 2018

Over $500 million has been raised by Canadian reporting issuers since the adoption of a streamlined offering exemption in 2015, according to a recent CSA report.

  • Prior to adoption of the streamlined exemption, there were about 13 prospectus-exempt rights offerings per year.
  • Between December 8, 2015 (the date the streamlined exemption came into effect) and December 31, 2017, the streamlined exemption has been used by 60 issuers to raise a total of $535.5 million.
  • The average time to complete such a rights offering has been cut in half: from 85 days to 41 days.
  • In a recently released review of how the streamlined exemption is working, the CSA identified a number of disclosure and compliance issues but found that overall compliance levels are high.

Highlights of the CSA Review

On July 26, the Canadian Securities Administrators (CSA) published CSA Staff Notice 45-323 (revised) to provide an update on the use of the streamlined rights offering exemption for reporting issuers adopted in December 2015. As we discussed in a post prior to its coming into effect, the streamlined exemption was adopted in order to make prospectus-exempt rights offerings more attractive to issuers while maintaining adequate investor protections.

It appears from the CSA’s review that adoption of the streamlined exemption has had the intended effect. According to the CSA, the exemption has been used 60 times in the past two years, raising $535.5 million across the country. The mining sector has used the exemption most often during that time, for a total of 19 rights offerings, followed by the oil and gas sector and industrial sector at 10 apiece. The CSA report also broke down use of the exemption by exchange, finding that 38 of the rights offerings were completed by TSX-V issuers and 17 by TSX issuers.

In addition to the increased use of prospectus-exempt rights offerings, the CSA also noted that the average time it took to complete such offerings has fallen from 85 days prior to adoption of the streamlined exemption to just 41 days since the streamlined exemption came into force.

Areas for Improvement

The CSA report also identified a number of compliance and disclosure issues with the use of the streamlined exemption and provided suggestions for improvements, namely in regards to the following:

  • Stand-by commitments. The CSA identified disclosure deficiencies in some of the cases involving stand-by commitments. Issues included disclosure regarding to the nature of the relationship between the issuer and stand-by guarantor and confirmation that the stand-by guarantor has the financial ability to satisfy its commitments.
  • Use of available funds. While the CSA stated that most issuers provided sufficient disclosure on the use of available funds, some issuers did not provide adequate disclosure where there had been a significant change in working capital since the most recently audited annual financial statements. Meanwhile, some issuers failed to provide meaningful disclosure when reporting a working capital deficiency. The CSA also noted that the level of detail in describing how available funds would be used could be improved, as allocating funds to working capital was not considered sufficient to meet the required level of detail.
  • Closing news release. The CSA noted that some issuers did not include all of the information required in the closing news release.

Despite the highlighted compliance and disclosure issues, the CSA ultimately noted that issuers have generally been complying with the applicable requirements and using the streamlined exemption appropriately.

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