The Division of Corporate Finance of the U.S. Securities and Exchange Commission (the "Commission") recently issued a no-action letter confirming that it would not object to Canadian reporting issuers using Form F-7 to register rights offerings pursuant to the recently revamped prospectus exemption. The Form F-7 is a prescribed form comprising two pages that "wrap around" a Canadian offering document, and is filed with the Commission under the U.S. Securities Act of 1933. The Form F-7 is effective upon filing.
This decision may prove to be beneficial both to U.S. shareholders, who may be offered the opportunity to participate in discounted offerings by Canadian issuers, as well as to the issuers who wish to access capital from their U.S. shareholders. When considered alongside the amendments made by the Canadian Securities Administrators to the exempt rights offering regime in late 2015, the Commission's decision should serve as a further step toward reinvigorating this capital raising mechanism.
A rights offering is a method of financing that gives a reporting issuer's existing securityholders the right to acquire additional securities of the issuer on a proportional basis, typically at a discount to the market price. The previous Canadian rights offering exemption, which was set forth in now repealed National Instrument 45-101 Rights Offerings, had in recent years largely fallen out of use due to the restrictions imposed by the rule on the size of offerings and the length of time required to clear rights offering circulars through securities regulators.
Recognizing the need to make the rights offering exemption more utilitarian, section 2.1 of National Instrument 45-106 Prospectus Exemptions (the "Rights Offering Exemption") was amended. The amendments offered several enhancements to the old regime, including a streamlined offering process by which issuers are required to deliver a notice of the offering to shareholders, as opposed to a circular, and an increased dilution limit of 100% of the issuer's outstanding securities. Issuers wishing to take advantage of the prospectus exemption are still required to prepare a circular for the offering and file it on SEDAR, but they are no longer required to have it reviewed by securities regulators or distributed to shareholders.
The Impact of the Amendments on U.S. Securityholders
While clearly a move in the right direction from the perspective of raising capital in Canada, none of the more...