Exemption Orders (Discretionary)
BMO NESBITT BURNS INC.
2001 BCSECCOM 765
Headnote
Mutual Reliance Review System for Exemptive Relief Applications – Issuer is a “connected issuer,” but not a “related issuer,” of the registrants that are to act as underwriters in a proposed distribution of common shares of the Issuer – Issuer is not a “specified party” as defined in proposed Multi-Jurisdictional Instrument 33-105 Underwriting Conflicts – Registrant underwriters exempted from independent underwriter requirement provided that, at the time of the distribution, the Issuer is not a “specified party” as defined in the proposed Instrument, and, in the case of each registrant, is not a “related issuer.”
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 ALBERTA, BRITISH COLUMBIA, ONTARIO AND NEWFOUNDLAND
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF BMO NESBITT BURNS INC., CIBC WORLD MARKETS INC.
AND
407 INTERNATIONAL INC.
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the "Decision Maker") in each of Alberta, British Columbia, Ontario and Newfoundland (the "Jurisdictions") has received an application from BMO Nesbitt Burns Inc. and CIBC World Markets Inc. (together, the "Filers") and 407 International Inc. ("407 International"), for a decision, pursuant to the securities legislation of the Jurisdictions (the "Legislation"), that the requirement (the "Independent Underwriter Requirement") contained in the Legislation which prohibits a registrant from acting as underwriter in connection with a distribution of securities of an issuer, made by means of a prospectus, where the issuer is a "related issuer" (or the equivalent) of the registrant, or, in connection with the distribution, a "connected issuer" (or the equivalent) of the registrant without certain required participation in the distribution by one or more other registrants, in respect of which the issuer is neither a related issuer (or the equivalent) of the registrant, nor, in connection with the distribution, a connected issuer (or the equivalent) of the registrant, shall not apply to the Filers in respect of a proposed distribution (the "Distribution") of Subordinated Bonds, Series 01-C1 (the "Series 01-C1 Bonds") of 407 International to be made by means of a prospectus (the "Prospectus") expected to be filed with the securities regulatory authority or regulator (the "Securities Regulators") in each of the provinces of Canada;
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS the Filers and 407 International have represented to the Decision Makers that:
1. 407 International was incorporated on March 17, 1999 under the provisions of the Business Corporations Act (Ontario), has its head office in the City of Toronto in the Province of Ontario and, as of July 20, 1999, is a reporting issuer in each of the Jurisdictions.
2. 407 International was formed for the purpose of submitting a bid to the Government of the Province of Ontario (the "Province") in connection with the privatization of Highway 407 ETR by the Province. 407 International was selected as the successful bidder and on May 5, 1999 acquired from the Province, at a purchase price of approximately $3.1 billion (the “Acquisition Cost”), all of the shares of 407 ETR Concession Company Limited (the "Concessionaire") (the company established by the Province to hold the concession rights in respect of Highway 407 ETR).
3. In preparing its bid for the Concessionaire, 407 International, under the guidance and with the advice of its financial advisors, determined that the optimal means of financing for 407 International would consist largely of a variety of capital market debt instruments. However, because of the competitive nature of the bidding process for Highway 407 ETR and the requirement of the Province that the successful bidder have in place prior to April 12, 1999 committed financing sufficient to satisfy the Acquisition Cost, 407 International initially financed the Acquisition Cost with bridge financing.
4. 407 International has established a "Capital Markets Platform" to provide a common security package and a common set of principal covenants for all lenders, whether capital market investors or members of the banking syndicate that provided bridge financing in respect of the Acquisition Cost.
5. To refinance the bridge financing of the Acquisition Cost, 407 International has completed (i) on July 27, 1999, an initial public offering of "A" rated senior bonds in an aggregate principal amount of $1.1 billion, (ii) on August 20, 1999, a private placement of "A" rated senior bonds in an aggregate principal amount of $650 million, (iii) on October 15, 1999, a public offering of "A" rated senior bonds in an aggregate principal amount of $400 million, (iv) on February 2, 2000, a private placement of "A" rated senior bonds in an aggregate principal amount of $325 million, which bonds were replaced on March 9, 2000 with "A" rated senior bonds qualified by prospectus, (v) on March 15, 2000, a public offering of "A" rated exchangeable senior bonds in an aggregate principal amount of $430 million, (vi) on May 31, 2000, a public offering of "BBB" rated subordinated bonds in an aggregate principal amount of $300 million, and (vii) on July 24, 2000 a public offering of "A-" rated junior bonds in the aggregate principal amount of $165 million.
6. In connection with the May 31, 2000 offering of subordinated bonds, on May 31, 2000 a portion of the bridge financing in respect of the Acquisition Cost was refinanced by 407 International with a subordinated term credit facility (the "Subordinated Term Credit Facility") provided by a syndicate of Canadian and foreign banks (the “Subordinated Facility Banks”). The Subordinated Facility Banks have agreed to amend the Subordinated Term Credit Facility so that a portion of the indebtedness under the Subordinated Term Credit Facility will be represented by subordinated bonds issued to the Subordinated Facility Banks.
7. The Subordinated Facility Banks provided the Subordinated Term Credit Facility with the understanding that 407 International would refinance the Subordinated Term Credit Facility through publicly offered securities.
8. In connection with the Offering, a Canadian chartered bank will provide 407 International with a short-term credit facility (the "Short-Term Credit Facility") which will be utilized by 407 International to repurchase those bonds issued under the Subordinated Term Credit Facility which are to be resold in the Offering. The proceeds of the Offering will be used to repay the indebtedness under the Short-Term Credit Facility.
9. BMO Nesbitt Burns Inc. will be the lead underwriter for the Offering, and the underwriting syndicate also will include RBC Dominion Securities Inc., CIBC World Markets Inc., National Bank Financial Inc., Scotia Capital Inc. and Casgrain & Company Limited.
10. With respect to each Filer, 407 International is not a "related issuer", but is a "connected issuer" in connection with the Distribution, as such terms are defined in draft Multi-Jurisdictional Instrument 33-105 - Underwriting Conflicts ("Draft Instrument 33-105") because the Filers are subsidiaries of Canadian chartered banks that has provided the Subordinated Term Credit Facility to 407 International and BMO Nesbitt Burns Inc. is a subsidiary of a Canadian chartered bank that also has provided the Short-Term Credit Facility to 407 International.
11. Each of the Filers, is registered under the securities legislation of each of Alberta, Ontario and Newfoundland as an "investment dealer" and "broker" and under the securities legislation of British Columbia as an "investment dealer" and "underwriter".
12. 407 International has received from Standard & Poor’s Rating Service a "BBB" rating and an equivalent rating from Dominion Bond Rating Service Limited in respect of the Series 01-C1 Bonds comprising the Distribution.
13. The Prospectus will contain the information specified in Appendix "C" of the Draft Instrument, on the basis that 407 International is a "connected issuer" of each Filer, as such term is defined in Draft Instrument 33-105.
14. 407 International is in good financial condition and is not a "specified party" as defined in Draft Instrument 33-105, and is not a “related issuer” (or the equivalent) of any of the Filers as such term is defined in the Legislation of any of the Jurisdictions.
AND WHEREAS pursuant to the System this MRRS 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, in connection with the Distribution, the Independent Underwriter Requirement shall not apply to the Filers.
DATED at Toronto, Ontario this 14th day of June, 2001.
Paul Moore Stephen N. Adams