Exemption Orders (Discretionary)
MERRILL LYNCH FINANCIAL ASSETS INC.
2001 BCSECCOM 647
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - issuer is a related issuer and connected issuer of applicant underwriter -- issuer administered by the underwriter, and both issuer and underwriter are subsidiaries of common parent -- issuer proposing distribution by prospectus of tranche of asset-backed securities -- complete relief from the independent underwriter requirement in the Legislation granted since over 90% of the Offering is expected to be sold to institutional investors and no purchase under the prospectus shall be for less than $500,000 -- adequate disclosure of the relationship between the issuer and the underwriter will be provided to investors.
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 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 FINANCIAL ASSETS INC.
(formerly 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 Financial Assets Inc. (formerly 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 5 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; effective March 15, 2001, the Issuer changed its name from Merrill Lynch Mortgage Loans Inc. to Merrill Lynch Financial Assets Inc.; the head office of the Issuer is located in Toronto, Ontario;
2. 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.");
3. 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"); approximately $255,981,000 (initial certificate balance) of Commercial Mortgage Pass-Through Certificates, Series 2000-Canada 4 (the "C-4 Certificates"); and approximately $187,680,000 (initial certificate balance) of Commercial Mortgage Pass-Through Certificates, Series 2001-LBC (the "LBC Certificates");
4. on May 19, 2000 the Issuer filed a revised annual information form and received an acceptance thereof on behalf of the Canadian securities administrators dated August 31, 2000;
5. the Issuer is and has been a "reporting issuer" pursuant to the securities legislation in certain of the provinces of Canada for over 12 calendar months. Pursuant to a decision dated November 30, 2000 of the Decision Makers of Ontario, British Columbia, Alberta, Newfoundland, Nova Scotia and Saskatchewan (the "November 30, 2000 Decision"), the Issuer has been granted certain relief in connection with the requirement in the securities legislation of such jurisdictions to make continuous disclosure of its financial results, and from other forms of continuous disclosure required under such legislation, provided that the Issuer complies with the conditions set out in the November 30, 2000 Decision;
6. 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 LBC 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 LBC Certificates, the Tower Certificates and the BMCC Certificates;
7. the officers and directors of the Issuer are employees of ML Canada;
8. 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;
9. ML Canada is not a reporting issuer in any Canadian province;
10. 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;
11. the Issuer proposes to offer Commercial Mortgage Pass-Through Certificates, Series 2001-Canada 5 (the "Canada 5 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 short form prospectus distributions, 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 5 Pass-Through Certificate of a particular class will represent an undivided co-ownership interest in a particular pool of mortgage loans;
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. 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, Canada 3 and Canada 4 offerings and ML & Co.'s U.S. experience;
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 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 administers the ongoing operations and pays the ongoing operating expenses of the Issuer, for which ML Canada receives no additional compensation;
16. 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 administers the on-going operations of the Issuer;
17. in connection with the proposed distribution by ML Canada of 100% of the Canada 5 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 5 Pass-Through Certificates being offered and the determination of the terms of the distribution, and
(iv) details of the financial benefits described in paragraph 14 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 17 hereof.
DATED this 5th day of April, 2001.
Howard I. Wetston R. Stephen Paddon