Many cross-border securitization transactions will involve an issuance of securities to investors in Canada, and accordingly, it is important for U.S. practitioners to be familiar with Canadian securities laws.
In Canada, like in the U.S., the issuance of securities to investors is subject to extensive disclosure and filing requirements. If securities are being issued in a public offering, then an issuer will need to prepare an offering document known as a "prospectus", which is similar to a registration statement in the U.S., and which will be subject to review by provincial securities regulators. The prospectus will need to comply with detailed form requirements, which may vary depending on the type of public offering that is being conducted.
Where securities are being issued in a private placement, there is generally no requirement for an issuer to prepare an offering document. In many cases, however, an issuer will choose to prepare an offering document known as an "offering memorandum" to assist with the marketing of the securities. Unlike a prospectus, there are generally no form requirements for an offering memorandum, although some provinces do require that an offering memorandum disclose certain statutory rights of action for damages or rescission.
If an issuer prepares an offering memorandum, then it will need to ensure that the offering memorandum does not contain a "misrepresentation", or the issuer may be liable to investors under both statutory and tort law. A "misrepresentation" is an untrue statement of a "material fact" or an omission to state a "material fact" that is required to be stated so that investors are not misled. A "material fact" is a fact that would reasonably be expected to have a significant effect on the market price or value of securities.
An issuer is only permitted to offer securities on a private-placement basis in circumstances where a prospectus exemption is available. There are a variety of prospectus exemptions under Canadian securities laws, but in the context of securitization transactions, an issuer will typically rely on the "accredited investor" exemption, which provides for sales to certain institutional investors, or the "minimum amount" exemption, which provides for sales of securities having a cash purchase price in excess of a designated amount.
Depending on the prospectus exemption that is relied on, an issuer may be required to file with provincial securities regulators a post-closing report setting out certain information regarding the private placement, along with the payment of filing fees to such regulators. The filing fees vary depending on the province, with some provincial securities regulators charging a flat fee, and others charging a fee based on the proceeds raised by the issuer in their province. In addition, if an offering memorandum is provided to investors, some provincial securities regulators require that the offering memorandum be filed with them.
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