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Many senior Canadian issuers access the Canadian capital markets through the shelf prospectus system, which allows an issuer which meets certain criteria to issue securities over a two-year period. A shelf prospectus is filed qualifying the total amount of securities which the issuer expects to issue over a two-year period and the issuer then issues securities in tranches depending on market conditions and its needs.

Foreign issuers often access the Canadian capital markets by establishing a medium term note program through a single purpose financing subsidiary. The medium term notes are typically issued under a base shelf prospectus and guaranteed by the foreign parent. For example, DaimlerChrysler Canada Finance qualified C$5 billion ($3.2 billion) of notes last year and immediately issued C$750 million (representing the largest single Canadian medium term note offering to date). These notes are guaranteed by the ultimate German parent corporation of the issuer, DaimlerChrysler.

Set out below are the principal differences between the procedures relating to shelf distributions under the new National Instrument 44-102 – Shelf Distributions (NI 44-102) and its predecessor, National Policy No. 44 (NP44). NI 44-102 came into force on December 31 2000. These changes apply not only to base shelf prospectuses relating to medium term notes but also to base shelf prospectuses generally.

NI 44-102 involves three new provisions not contained in the shelf provisions in NP44:

  • first, NI 44-102 expands access to the shelf procedures to permit distributions of cash settled derivatives and asset-back securities;
  • second, NI 44-102 permits shelf prospectuses that contemplate both equity and debt offerings without specific allocation between them (subject to an obligation to issue a press release where discussions occur with an underwriter concerning the distribution of a tranche of equity securities under an unallocated shelf prospectus); and
  • third, NI 44-102 provides that an existing shelf prospectus cannot be used to distribute securities if the issuer, at the time of proposed distribution, no longer meets the (general) prompt offering system eligibility criteria.

Todd May

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