Proposed Short-Term Debt Exemption in Canada – A Chart Simplifying the Credit Rating Requirement

This is a follow-up to a recently posted blog on January 30, 2014 titled, “Changes Proposed for Exempt Offerings of Short-Term Debt and Securitized Products in Canada.”

The designated rating provision under the existing Short-Term Debt Exemption in Section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106) requires an issuer of short-term debt, such as commercial paper, to have at least one credit rating that meets or exceeds a specified minimum rating ( the “credit rating threshold condition”). Although an issuer of short-term debt does not require more than one credit rating, if the issuer obtains another credit rating of its commercial paper, each rating must be at or above the specified minimum. This additional rating requirement has been termed the “split rating condition”. The CSA has modified the “split rating condition” in proposed amendments to the Short-Term Debt Exemption in s. 2.35 of NI 45-106.

The chart below has been prepared to provide a better visual presentation of the “modified split rating condition”.

Simply, a short-term debt issuer needs at least one credit rating in green to satisfy the credit rating threshold condition.

If the short-term debt has more than one credit rating, it cannot have a credit rating in the red, but it can have another credit rating in the white or green in order to satisfy the credit rating requirements under the Proposed Short-Term Debt Exemption.

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Disclaimer

This blog is not intended to create, and does not create an attorney-client relationship. You should not act or rely on information on this blog post without first seeking the advice of a lawyer.  This material is intended for general information purposes only and does not constitute legal advice.  For legal issues that arise, the reader should consult legal counsel.

Author:

Brian Koscak is a Partner at Cassels Brock & Blackwell LLP located in Toronto, Ontario and Chair of the Exempt Market Dealers Association of Canada. Brian is also a member of the Ontario Securities Commission’s Exempt Market Advisory Committee. Brian can be reached by phone at 416-860-2955, by e-mail at bkoscak@casselsbrock.com or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at www.briankoscak.com.

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