Exemption Orders (Discretionary)
MERRILL LYNCH MORTGAGE LOANS INC.
2001 BCSECCOM 154
Headnote
Mutual Reliance Review System for Exemptive Relief Applications –relief granted from the independent underwriter requirements of the Legislation in connection with a public offering subject to certain conditions. The issuer is a connected and related issuer of a sole underwriter and there is no independent underwriter involvement.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, s. 48
IN THE MATTER OF SECURITIES LEGISLATION OF ONTARIO, BRITISH COLUMBIA, ALBERTA, QUÉBEC AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF MERRILL LYNCH MORTGAGE LOANS INC. AND
MERRILL LYNCH CANADA INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Ontario, British Columbia, Alberta, Québec and Newfoundland (the "Jurisdictions") has received an application from Merrill Lynch Mortgage Loans Inc. (the "Issuer") and Merrill Lynch Canada Inc. ("ML Canada") (the Issuer and ML Canada are collectively referred to herein as the "Filer") for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that the provision contained in the Legislation mandating independent underwriter involvement shall not apply to ML Canada and the Issuer in respect of the proposed offering of Canada 4 Pass-Through Certificates (as defined below);
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "MRRS") the Ontario Securities Commission is the principal regulator for this Application;
AND WHEREAS it has been represented by the Filer to the Decision Makers that:
1. The Issuer was incorporated under the laws of Canada on March 13, 1995; the authorized share capital of the Issuer consists of an unlimited number of common shares, of which 1,000 common shares are issued and outstanding, all of which are held by Merrill Lynch & Co., Canada Ltd. ("ML & Co."); the head office of the Issuer is located in Toronto, Ontario.
2. The Issuer filed a long form prospectus dated June 14, 1995, and a supplemental prospectus dated June 19, 1995, in connection with an initial public offering of 6,000,000 S&P 500 BULLS (the "S&P 500 Bulls") and received receipts for such prospectus from each of the Canadian provincial securities regulatory authorities.
3. On May 12, 1999 the Issuer filed a revised annual information form and received an acceptance thereof on behalf of the Canadian securities administrators dated May 13, 1999.
4. On December 21, 1998, the Issuer offered, by private placement, $182,083,237 (initial certificate balance) of pass-through certificates evidencing co-ownership interests in a pool of 32 commercial mortgage loans, of which $163,874,000 (initial certificate balance) of pass-through certificates were designated as Exchangeable Commercial Mortgage Pass-Through Certificates, Series 1998-Canada 1 (the "Offered Certificates") and sold pursuant to a Confidential Offering Memorandum dated December 16, 1998.
5. The Issuer was issued receipts by each of the Canadian provincial securities regulatory authorities for a short form prospectus dated May 31, 1999 for the issuance of $163,874,000 (initial certificate balance) of commercial mortgage pass-through certificates, designated as Commercial Mortgage Pass-Through Certificates, Series 1998-Canada 1 (the "C-1 Certificates") in exchange for the Offered Certificates of the same class.
6. The Issuer filed a short form prospectus dated September 16, 1999 with each of the Canadian provincial securities regulatory authorities for the issuance of $193,741,000 (initial certificate balance) of commercial mortgage pass-through certificates, designated as Commercial Mortgage Pass-Through Certificates, Series 1999-Canada 2 (the "C-2 Certificates") and received receipts for such prospectus from each of the Canadian provincial securities regulatory authorities.
7. The Issuer filed a short form prospectus dated October 1, 1999 with each of the Canadian provincial securities regulatory authorities for the issuance of $220,000,000 (initial certificate balance) of pass-through certificates, designated as 1st Street Tower Pass-Through Certificates (the "Tower Certificates") and received receipts for such prospectus from each of the Canadian provincial securities regulatory authorities.
8. On May 19, 2000 the Issuer filed an annual information form and received an acceptance thereof on behalf of the Canadian securities administrators dated August 31, 2000.
9. The Issuer filed a prospectus supplement dated May 19, 2000 to a short form prospectus dated May 18, 2000 with each of the Canadian provincial securities regulatory authorities to qualify the issuance of approximately $227,324,000 (initial certificate balance) of commercial mortgage pass-through certificates, designated as Commercial Mortgage Pass-Through Certificates, Series 2000-Canada 3 (the “C-3 Certificates”) and received receipts for such prospectus supplement from each of the Canadian provincial securities regulatory authorities.
10. The Issuer filed a preliminary short form prospectus dated September 18, 2000 with each of the Canadian provincial securities regulatory authorities for the issuance of approximately $115,500,000 (initial certificate balance) of pass-through certificates, designated as BMCC Corporate Centre Pass-Through Certificates, Series 2000 – BMCC (the “BMCC Certificates”) and received receipts for such preliminary prospectus from each of the Canadian provincial securities regulatory authorities. The Issuer intends to file a short form prospectus with each of the Canadian provincial securities regulatory authorities for the issuance of the BMCC Certificates.
11. The Issuer has been a "reporting issuer" pursuant to the securities legislation in certain of the provinces of Canada for over 12 calendar months, but has applied for relief from the requirements to make continuous disclosure of its financial results and from all other forms of continuous disclosure requirements under applicable securities legislation from the securities regulatory authorities in applicable provinces other than certain reports to the S&P 500 Bulls investors, the Canada 1 Certificateholders, the Canada 2 Certificateholders, the Canada 3 Certificateholders and the Tower Certificateholders based upon the fact that after the completion of the S&P 500 Bulls, C-1 Certificates, C-2 Certificates, C-3 Certificates and Tower Certificates transactions the continued financial performance of the Issuer is not relevant to an investor because the S&P Bulls, C-1 Certificates, C-2 Certificates, C-3 Certificates and Tower Certificates do not represent any interest or claim on any assets of the Issuer.
12. The Issuer currently has no assets or liabilities other than its rights and obligations under certain of the material contracts related to the S&P 500 BULLS, the C-1 Certificates, the C-2 Certificates, the C-3 Certificates and the Tower Certificates transactions and does not presently carry on any activities except in relation to the S&P 500 Bulls, the C-1 Certificates, the C-2 Certificates, the C-3 Certificates and the Tower Certificates.
13. The officers and directors of the Issuer are employees of ML Canada.
14. ML Canada was continued and amalgamated under the laws of Canada on August 26, 1998; the authorized share capital of ML Canada consists of an unlimited number of common shares; the common shares of ML Canada are owned by ML & Co. and Midland Walwyn Inc; the head office of ML Canada is located in Toronto, Ontario.
15. ML Canada is not a reporting issuer in any Canadian province.
16. ML Canada is registered as a dealer in the categories of "broker" and "investment dealer" and is a member of the Investment Dealers Association of Canada.
17. The Issuer proposes to offer Commercial Mortgage Pass-Through Certificates, Series 2000-Canada 4 (the "Canada 4 Pass-Through Certificates"), issuable in classes, with an Approved Rating by an Approved Rating Organization, as those terms are defined in the Legislation with respect to the prompt offering qualification system (the "POP System") and the shelf system (the "Shelf System"), to the public in Canada (the "Offering"), to finance the purchase by the Issuer from Merrill Lynch Capital Canada Inc. and from other originators of mortgage loans of ownership interests in particular mortgage loans deposited with Montreal Trust Company of Canada as custodian; each Canada 4 Pass-Through Certificate of a particular class will represent an undivided co-ownership interest in a particular pool of mortgage loans.
18. ML Canada proposes to act as the underwriter in connection with the distribution of 100% of the dollar value of the distribution for the proposed Offering.
19. The Filers expect that approximately 90% of the Offering, in which the minimum subscription will be $500,000, will be made to Canadian institutions, pension funds, endowment funds or mutual funds based upon the experience of the Canada 1, Canada 2 and Canada 3 offerings and ML & Co.'s U.S. experience.
20. The only financial benefits which ML Canada will receive as a result of the proposed Offering are the normal arm's length underwriting commission and reimbursement of expenses associated with a public offering in Canada, which commissions and reimbursements shall for purposes of this Decision be deemed to include the increases or decreases contemplated by Section 3.5(a)(1) of National Policy No. 44 and by the applicable securities legislation in Québec.
21. ML Canada took the initiative in organizing the business of the Issuer in connection with the Offering and as such ML Canada may be considered to be a "promoter" of the Issuer within the meaning of the Legislation.
22. ML Canada administers the ongoing operations and pays the ongoing operating expenses of the Issuer, for which ML Canada receives no additional compensation.
23. The Issuer may be considered to be a related issuer (as defined in the Legislation) and therefore a connected (or equivalent) issuer (as defined in the Legislation) of ML Canada for the purposes of the proposed Offering because:
(a) both ML Canada and the Issuer are subsidiaries of ML & Co.;
(b) the officers of the Issuer are employees of ML Canada;
(c) ML Canada is a promoter of the Issuer; and
(d) ML Canada administers the on-going operations of the Issuer.
24. In connection with the proposed distribution by ML Canada of 100% of the Canada 4 Pass-Through Certificates of the Issuer, the preliminary and final prospectus of the Issuer shall contain the following information:
(a) on the front page of each such document,
(i) a statement, naming ML Canada, in bold type which states that the Issuer is a related or connected issuer of ML Canada in connection with the distribution,
(ii) a summary, naming ML Canada, stating that the Issuer is a related or connected issuer of ML Canada based on, among other things, the common ownership of ML Canada and the Issuer,
(iii) a cross-reference to the applicable section in the body of the document where further information concerning the relationship between the Issuer and ML Canada is provided, and
(iv) a statement that the minimum subscription amount is $500,000;
(b) in the body of each such document,
(i) a statement, naming ML Canada, that the Issuer is a related or connected issuer of ML Canada in connection with the distribution,
(ii) the basis on which the Issuer is a related or connected issuer to ML Canada, including details of the common ownership by ML & Co. of ML Canada and the Issuer, and other aspects of the relationship between ML Canada and the Issuer,
(iii) disclosure regarding the involvement of ML Canada in the decision to distribute the Canada 4 Pass-Through Certificates being offered and the determination of the terms of the distribution, and
(iv) details of the financial benefits described in paragraph 20 of this Decision Document which ML Canada will receive from the proposed Offering.
AND WHEREAS pursuant to the MRRS this Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that the requirement contained in the Legislation mandating independent underwriter involvement shall not apply to ML Canada and the Issuer in connection with the Offering provided that the Issuer complies with paragraph 24 hereof.
DATED at Toronto, on this 26th day of October, 2000.
J. A. Geller Robert W. Korthals