François Paradis, Jeremy Fraiberg, Desmond Lee
Dec 1, 2011
The Canadian Securities Administrators (CSA) have issued proposed changes to the rules on the marketing of prospectus offerings. These changes include new rules on “upsizing” bought deals and new rules on the conduct of road shows. These changes are not in force, and the CSA has asked for feedback on a number of specific elements of the proposals.
While some of the changes may be consistent with existing Street practice, some of the new proposals, if adopted, would impact marketing activities in a number of ways. For instance:
- the CSA has finally proposed rules on “upsizing” a bought deal, and is requesting comments on whether upsizing should be capped at 15%, 25%, 50% or some other limit of the original offering size;
- the CSA is proposing to regulate the use of term sheets on prospectus offerings, including bought deals. In addition to requiring prescribed new legends on term sheets, they are proposing that a term sheet be approved in writing by the issuer and all of the underwriters and filed on SEDAR prior to providing it to any potential investors. Term sheets would also need to be included in the prospectus, meaning issuers and underwriters would have liability on them. As a practical matter, we believe there is typically little, if any, information in a term sheet that would not be in the prospectus, but this would be a significant change from the current law;
- the CSA is proposing brand new rules on road shows. Not surprisingly, the new rules explicitly state that all information in a road show needs to be in the prospectus. The CSA is asking for comments on the use of “comparables” (i.e., data and information on comparable companies relevant for pricing and other purposes) in road show materials. The CSA is proposing to distinguish between institutional investors and retail investors in terms of providing comparables. Comparables could be disclosed to institutional investors in a road show without that information being in the prospectus if written confidentiality commitments are obtained from those investors. However, comparables could only be disclosed to retail investors in a road show if that information is in the prospectus and the issuer and underwriters take liability for it. In practice, this may not be a significant issue given that road shows for retail investors are relatively uncommon in Canada;
- the CSA is also asking for comments on whether there should be additional rules on the use of comparables, such as prescribed templates for metrics, or rules on how to pick a representative sample of comparable issuers;
- one other notable aspect of the new rules is that written materials distributed to investors during road shows (other than the prospectus) are proposed to be treated in the same way as term sheets, suggesting that if any investor presentation (i.e., a slide deck) is given to investors in physical form, that would need to be included in the prospectus and filed on SEDAR. This would result in issuers and underwriters having liability on an investor presentation; and
- the CSA is also proposing a new “testing the waters” exemption that would allow limited marketing to institutional investors prior to an IPO of a private company. This ability to test the waters could be of interest to issuers and dealers looking for early stage views on whether there is demand for the securities of a particular issuer and potential pricing. The proposed exemption would not apply if the issuer is listed in any jurisdiction.
We will be providing further commentary on these proposals in a future update.
The proposals were issued on November 25, 2011 and the deadline for comments is February 23, 2012.