Allbanc Split Corp. II - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications --subdivided offering exempted from certain requirements of National Instrument 81-102 Mutual Funds since issuer is fundamentally different from a conventional mutual fund.
Rules Cited
National Instrument 81-102 Mutual Funds, ss. 19.1, 2.1(1), 2.6(a), 3.3, 10.3, 10.4(1), 12.1(1),14.1.
January 9, 2006
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO, BRITISH COLUMBIA, ALBERTA,
SASKATCHEWAN, MANITOBA, QUÉBEC,
NEW BRUNSWICK, NEWFOUNDLAND AND
LABRADOR, NOVA SCOTIA, PRINCE EDWARD
ISLAND AND THE NORTHWEST TERRITORIES
(the "Jurisdictions")
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
ALLBANC SPLIT CORP. II
(the "Filer")
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application (the "Application") from Allbanc Split Corp. II dated December 12, 2005 for exemptive relief pursuant to section 19.1 of National Instrument 81-102 --Mutual funds (NI 81-102) from certain provisions of NI 81-102.
Under the Mutual Reliance Review System for Exemptive Relief Applications
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) this MRRS Decision Document evidences the decision of each Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer was incorporated under the Business Corporations Act (Ontario) on December 7, 2005.
2. The Filer will make offerings to the public (the "Offerings") on a best efforts basis, of class A capital shares (the "Capital Shares") and class A preferred shares (the "Preferred Shares") pursuant to a final prospectus (the "Final Prospectus") in respect of which a preliminary prospectus dated December 7, 2005 (the "Preliminary Prospectus") has already been filed.
3. The Capital Shares and the Preferred Shares will be listed for trading on the Toronto Stock Exchange (the "TSX"). An application requesting conditional listing approval has been made by the Filer to the TSX.
4. The Filer is a passive investment company whose principal investment objective is to invest in a portfolio of common shares (the "Portfolio Shares") of Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, The Bank of Nova Scotia and The Toronto-Dominion Bank in order to generate fixed cumulative preferential distributions for holders of the Filer's Preferred Shares, and to allow the holders of the Filer's Capital Shares to participate in capital appreciation of the Portfolio Shares after payment of administrative and operating expenses of the Filer. It will be the policy of the Board of Directors of the Filer to pay dividends on the Capital Shares in an amount equal to the dividends received by the Filer on the Portfolio Shares minus the distributions payable on the Preferred Shares and all administrative and operating expenses of the Filer.
5. The expenses incurred in connection with the Offerings (the "Expenses of the Offerings"), being the costs of incorporation, formation and initial organization of the Filer, including the preparation and filing of the Preliminary Prospectus and the Final Prospectus, will be borne by the Filer.
6. The net proceeds of the Offerings (after deducting the agents' fees, Expenses of the Offerings and the Filer's interest and other expenses relating the acquisition of the Portfolio Shares) will be used by the Filer to fund the purchase of Portfolio Shares.
7. The Filer has established a credit facility with Scotia Capital Inc. ("Scotia Capital") which may be used by the Filer to purchase the Portfolio Shares and which will be repaid in full on the closing of the Offerings. The maximum rate of interest payable on such credit facility will be set out in the Final Prospectus. The Filer also intends to establish a revolving credit facility after the closing of the Offerings, which may be used to fund the payment of a portion of the fixed distributions on the Preferred Shares on a temporary basis if necessary. To the extent that either credit facility is used, the Filer will pledge Portfolio Shares as collateral for amounts borrowed thereunder.
8. It will be the policy of the Filer to hold the Portfolio Shares and to not engage in any trading of the Portfolio Shares, except:
(i) to fund retractions or redemptions of Capital Shares and Preferred Shares;
(ii) pursuant to a rebalancing of the Portfolio by the Board of Directors;
(iii) following receipt of stock dividends on the Portfolio Shares;
(iv) in the event of a take-over bid for any of the Portfolio Shares;
(v) if necessary, to fund any shortfall in the distribution on Preferred Shares;
(vi) to meet obligations of the Filer in respect of liabilities including extraordinary liabilities; or
(vii) certain other limited circumstances as described in the Preliminary Prospectus.
9. Preferred Share distributions will be funded primarily from the dividends received on the Portfolio Shares and, if necessary, any shortfall will be funded with proceeds from the sale of Portfolio Shares or, if determined appropriate by the Board of Directors, premiums earned from writing covered call options on the Portfolio Shares.
10. The record date for the payment of Preferred Share distributions, Capital Share dividends or other distributions of the Filer will be set in accordance with the applicable requirements of the TSX.
11. The Capital Shares and Preferred Shares may be surrendered for retraction at any time. Retraction payments for Capital Shares and Preferred Shares will be made on the Retraction Payment Date (as defined in the Preliminary Prospectus) provided the Capital Shares and the Preferred Shares have been surrendered for retraction at least five business days prior to the Valuation Date (as defined in the Preliminary Prospectus). While the Filer's Unit Value (as defined in the Preliminary Prospectus) is calculated weekly, the retraction price for the Capital Shares and the Preferred Shares will be determined based on the Unit Value in effect as at the Valuation Date.
12. Any Capital Shares and Preferred Shares outstanding on a date approximately five years from the closing of the Offerings, which date will be specified in the Final Prospectus, will be redeemed by the Filer on such date.
Decision
Each of the Decision Makers is satisfied that based on the information and representations provided in the Application and this decision, and for the purposes described in the Application, the Decision Makers, as applicable, hereby grant exemptions from the following requirements of NI 81-102:
(a) subsection 2.1(1) -- to enable the Filer to invest all of its net assets in the Portfolio Shares, provided that the Filer does not become an insider of any issuer of the Portfolio Shares as a result of such investment;
(b) clause 2.6(a) --
(i) to enable the Filer to obtain a short-term loan from Scotia Capital to finance the initial acquisition of the Portfolio Shares and provide a security interest over its assets as stated in paragraph 7 above, provided that the loan is paid in full on the closing of the Offerings;
(ii) to enable the Filer to provide a security interest over its assets in connection with the revolving credit facility after the closing of the Offerings to permit the Filer to fund the payment of a portion of the fixed distribution of the Preferred Shares on a temporary basis if necessary, so long as the outstanding amount of any such borrowings of the Filer does not exceed 5% of the net assets of the Filer taken at market value at the time of the borrowing;
(c) section 3.3 -- to permit the Filer to bear the Expenses of the Offerings;
(d) section 10.3 -- to permit the Filer to calculate the retraction price for the Capital Shares and Preferred Shares in the manner described in the Preliminary Prospectus and on the applicable Valuation Date as defined in the Preliminary Prospectus;
(e) subsection 10.4(1) -- to permit the Filer to pay the retraction price for the Capital Shares and the Preferred Shares on the Retraction Payment Date, as defined in the Preliminary Prospectus;
(f) subsection 12.1(1) -- to relieve the Filer from the requirement to file the prescribed compliance reports; and
(g) section 14.1 -- to relieve the Filer from the requirement relating to the record date for the payment of dividends or other distributions, provided that it complies with the applicable requirements of the TSX.