Exemption Orders (Discretionary)

MERRILL LYNCH MORTGAGE LOANS INC.


2001 BCSECCOM 35


Headnote:

Mutual Reliance Review System for Exemptive Relief Applications - Relief granted from the independent underwriting requirements to permit a registrant to underwrite 100% of an offering of asset-backed securities by a related party, subject to certain conditions.

Applicable British Columbia Provisions

Securities Act, R.S.B.C. 1996, c. 418, s. 48

Securities Rules, B.C. Reg. 194/97, s. 78(2)(b)

IN THE MATTER OF THE CANADIAN 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 Merrill Lynch Mortgage Loans Inc. Commercial Mortgage Pass-Through Certificates, Series 2001 – LBC (as defined below) by means of a preliminary short form prospectus (the “Preliminary Prospectus”) and a short form prospectus (the “Prospectus”);

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. to date the Issuer has issued 600,000,000 S&P BULLS (the “S&P 500 Bulls”), $182,083,237 (initial certificate balance) of pass-through certificates of which $163,874,000 (initial certificate balance) were designated as Exchangeable Commercial Mortgage Pass-Through Certificates, Series 1998 - Canada 1 (the “Offered Certificates”), $163,874,000 (initial certificate balance) Commercial Mortgage Pass-Through Certificates, Series 1998-Canada 1 (the “C-1 Certificates”), $193,741,000 (initial certificate balance) of Commercial Mortgage Pass-Through Certificates, Series 1999-Canada 2 (the “C-2 Certificates”), $220,000,000 (initial certificate balance) of 1st Street Tower Pass-Through Certificates (the “Tower Certificates”), approximately $227,324,000 (initial certificate balance) of Commercial Mortgage Pass-Through Certificates, Series 2000-Canada 3 (the “C-3 Certificates”), approximately $115,500,000 (initial certificate balance) of BMCC Corporate Centre Pass-Through Certificates, Series 2000-BMCC (the “BMCC Certificates”) and approximately $255,981,000 (initial certificate balance) of Commercial Mortgage Pass-Through Certificates, Series 2000-Canada 4 (the “C-4 Certificates”);

3. on May 12, 1999 and May 19, 2000 the Issuer filed a revised annual information form and received an acceptance thereof on behalf of the Canadian securities administrators dated May 13, 1999 and August 31, 2000 respectively;

4. the Issuer has been a "reporting issuer" (or the equivalent as defined in the Legislation) pursuant to the securities legislation in each of the provinces of Canada for over 12 calendar months and is not in default of any of the requirements of the Legislation, but has been granted relief from the requirements to make continuous disclosure of its financial results under applicable securities legislation by 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, the Canada 4 Certificateholders, the Tower Certificateholders, the BMCC Certificateholders and the holders of such additional certificates (the “Additional Certificates”) as may be set forth from time to time in the schedule attached to the MRRS Decision Document dated November 30, 2000 and variations thereof granting the Issuer relief from the continuous disclosure requirements based upon the fact that after the completion of the S&P 500 Bulls, C-1 Certificates, C-2 Certificates, C-3 Certificates, C-4 Certificates, Tower Certificates, BMCC Certificates and any Additional 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, C-4 Certificates, Tower Certificates, BMCC Certificates and Additional Certificates do not represent any interest or claim on any assets of the Issuer;

5. 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, the C-4 Certificates, the Tower Certificates and the BMCC 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, the C-4 Certificates, the Tower Certificates and the BMCC Certificates;

6. the officers and directors of the Issuer are employees of ML Canada;

7. 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; all of the issued and outstanding 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;

8. ML Canada is not a reporting issuer in any Canadian province;

9. 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;

10. the Issuer proposes to offer Merrill Lynch Mortgage Loans Inc. Commercial Mortgage Pass-Through Certificates, Series 2001 – LBC (the "LBC 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. of ownership interests in particular mortgage loans purchased by Merrill Lynch Capital Canada Inc. from Laurentian Bank of Canada (“LBC”). Beneficial title to the mortgage loans will be deposited with Montreal Trust Company of Canada as custodian (the “Custodian”) on closing and within 90 days thereafter, registered title to the mortgage loans will be recorded in the name of the Custodian. Each LBC Pass-Through Certificate of a particular class will represent an undivided co-ownership interest in a particular pool of mortgage loans;

11. LBC is a bank under the Bank Act (Canada) and is a reporting issuer pursuant to the securities legislation in each of the provinces of Canada. LBC is an independent arm’s length party of ML Canada and the Issuer.

12. 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;

13. all material terms of the LBC Pass-Through Certificates and the Offering will be negotiated on an arm’s length basis between LBC and ML Canada and may not be changed in any material fashion without approval of specified percentage of the holders of the LBC Pass-Through Certificates which will be set out in the Preliminary Prospectus and the Prospectus in respect of the Offering. LBC has participated in the drafting of the Preliminary Prospectus, and will participate in the drafting of the Prospectus, the due diligence relating to the Offering and in the pricing of the LBC Pass-Through Certificates.

14. the only financial benefits which ML Canada will receive as a result of the proposed Offering are the normal arm's length underwriting commission, a structuring fee 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;

15. 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;

16. ML Canada administers the ongoing operations and pays the ongoing operating expenses of the Issuer, for which ML Canada receives no additional compensation;

17. the Issuer may be considered to be a related issuer (or the equivalent as defined in the Legislation) and therefore a connected issuer (or the equivalent 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;

18. in connection with the proposed distribution by ML Canada of 100% of the LBC Pass-Through Certificates of the Issuer, the Preliminary Prospectus and the 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 issuer (or the equivalent) and therefore a connected issuer (or the equivalent) of ML Canada in connection with the distribution,

(ii) a summary, naming ML Canada, stating that the Issuer is a related issuer (or the equivalent) and therefore a connected issuer (or the equivalent) of ML Canada based on, among other things, the common ownership of ML Canada and the Issuer, and

(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;

(b) in the body of each such document,

(i) a statement, naming ML Canada, that the Issuer is a related issuer (or the equivalent) and therefore a connected issuer (or the equivalent) of ML Canada in connection with the distribution,

(ii) a summary explaining the basis on which the Issuer is a related issuer (or the equivalent) and therefore a connected issuer (or the equivalent) of 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 LBC Pass-Through Certificates being offered and the determination of the terms of the distribution including specific reference to the negotiation of such terms on an arm’s length basis with LBC,

(iv) details of the financial benefits described in paragraph 14 of this Decision Document which ML Canada will receive from the proposed Offering, and

(v) the participation of LBC in the proposed Offering described in paragraph 13 of this Decision Document;

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:

(a) LBC participates in the Offering as stated in paragraph 13 above; and

(b) LBC’s participation in the Offering and the relationship between the Issuer and ML Canada are disclosed in the Preliminary Prospectus and the Prospectus of the Issuer as stated in paragraph 18 above.

DATED at Toronto, Ontario this 27th day of December, 2000.

Howard I. Wetston J.A. Geller
©2024 British Columbia Securities Commission