New amendments simplify “at-the-market” distributions in Canada and make them more attractive to issuers

July 29, 2020 | Jonathan Tong

On June 4, 2020, the Canadian Securities Administrators (CSA) amended National Instrument 44-102 Shelf Distributions with respect to at-the-market distributions of equity securities (“ATM Distributions”). These amendments will come into effect on August 31, 2020 and will bring welcomed changes for issuers.

Overview

  • Issuers will no longer be required to obtain exemptive regulatory relief for ATM Distributions.
  • The overall size and daily sales limits on ATM Distributions are being lifted.
  • Ongoing reporting requirements for ATM Distributions are being relaxed and streamlined.
  • The amendments align the Canadian ATM rules more closely with the American rules, which should facilitate cross-border ATM programs.
  • ATM Distributions represent a tailored alternative for issuers seeking to raise capital in a more timely and cost-effective manner, which is particularly pertinent given the COVID-19 backdrop and its impact on capital markets.

What is an ATM Distribution?

ATM Distributions are an alternative method for issuers to raise capital by periodically distributing equity securities at prevailing market prices through one or more registered securities dealer(s). In an ATM Distribution, issuers sell securities at varying market prices under a base shelf prospectus and a prospectus supplement.

ATM Distributions can be a useful tool for raising capital because they typically: (i) allow issuers to take advantage of favourable market conditions by accessing capital quickly and on an incremental, “as needed” basis; (ii) cost less than traditional offerings; (iii) do not require special marketing efforts; and (iv) allow issuers to set the minimum price, size, timing and other terms of sales made under an ATM Distribution.

What changes are coming to the ATM Distribution regime?

 The key amendments to the ATM Distribution regime in Canada are as follows:

  • Elimination of the need for exemptive relief. It will no longer be necessary to obtain regulatory exemptive relief in connection with ATM Distributions.
  • Elimination of the 10% Aggregate and 25% Daily Caps. The total size of an ATM Distribution is currently limited to 10% of the aggregate market value of the issuer’s outstanding securities of the same class. In addition, the aggregate number of securities that can be sold under an ATM Distribution on any given trading day is currently limited to 25% of the applicable daily trading volume of such securities on all marketplaces. After the new amendments take effect, the 10% and 25% caps will no longer apply.
  • Reporting obligations have been relaxed and streamlined. Beginning on August 31, 2020, all issuers may report sales under an ATM Distribution on a quarterly basis rather than on a monthly basis.

Overall, these amendments aim to bolster the efficiency of capital markets while still protecting investors. The elimination of the need for exemptive relief and the relaxation of reporting requirements reduces the regulatory burden on issuers conducting ATM Distributions. Further, the removal of the aforementioned aggregate and daily caps should provide issuers with greater market flexibility. These amendments will also bring the Canadian regime more closely in line with the United States, thereby encouraging cross-listed issuers to implement cross-border ATM programs.

An issuer that previously filed a base shelf prospectus and a prospectus supplement in connection with an active ATM program may file an amended prospectus supplement reflecting the new amendments after they take effect, without regulatory review. An issuer intending to rely on a base shelf prospectus filed prior to the effective date of the amendments in order to establish an ATM program (after such effective date) will not be required to re-file the applicable base shelf prospectus.

If you have any questions with respect to this legal update, please contact Jonathan Tong (jtong@millerthomson.com) or any other member of our Capital Markets & Securities Group.

 

Acknowledgment

The author of this publication would like to thank Sabrina Lau for her assistance with this publication.

Disclaimer

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