Brookfield Asset Management Reinsurance Partners Ltd.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption from the requirements of subsection 2.2(e) of National Instrument 44-101 Short Form Prospectus Distributions requiring an issuer's equity securities to be listed and posted for trading on short form eligible exchange -- exemption from the requirements of paragraph 9.3(1)(b) of National Instrument 44-102 Shelf Distributions requiring the securities distributed under an ATM prospectus be equity securities.
Applicable Legislative Provisions
National Instrument 44-101 Short Form Prospectus Distributions, ss. 2.2(e) and 8.1.
National Instrument 44-102 Shelf Distributions, ss. 9.3(1)(b) and 11.1.
May 25, 2021
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF BROOKFIELD ASSET MANAGEMENT REINSURANCE PARTNERS LTD.
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Brookfield Asset Management Reinsurance Partners Ltd. (the company or the Filer) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:
(a) the Filer be exempt from the requirements contained in section 2.2(e) of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) with respect to equity securities (the Short Form Prospectus Eligibility Requirements); and
(b) the Filer be exempt from requirements contained in section 9.3(1)(b) of National Instrument 44-102 -- Shelf Distributions ("NI 44-102"), that distributions by way of an at-the-market distribution using the shelf procedures be limited to distributions of equity securities (the At-the-Market Distribution Eligibility Requirements),
(collectively, the Exemption Sought),
in each case, to accommodate the issuance by the company of class A exchangeable limited voting shares of the company (class A exchangeable shares) that are the economic equivalent of, and exchangeable for, class A limited voting shares of (Brookfield Class A Shares) Brookfield Asset Management Inc. (Brookfield Asset Management), as more particularly described below.
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Yukon and Nunavut, as applicable.
Interpretation
Terms defined in National Instrument 14-101 Definitions (NI 14-101), MI 11-102 and NI 44-101 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
Relevant Entities
Brookfield Asset Management
1. Brookfield Asset Management was formed by articles of amalgamation dated August 1, 1997 and is organized pursuant to articles of amalgamation under the Business Corporations Act (Ontario) dated January 1, 2005.
2. Brookfield Asset Management's registered and head office is located at Suite 300, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3.
3. Brookfield Asset Management is a reporting issuer (or the equivalent thereof) in all of the provinces and territories of Canada and is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer or the equivalent thereof.
4. Brookfield Asset Management is a leading global alternative asset manager with a 120-year history and over US$600 billion of assets under management across a broad portfolio of real estate, infrastructure, renewable power, private equity and credit assets.
5. The Brookfield Class A Shares are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbols "BAM" and "BAM.A", respectively.
6. The authorized share capital of Brookfield Asset Management consists of (a) an unlimited number of preference shares designated as Class A Preference Shares, issuable in series, (b) an unlimited number of preference shares designated as Class AA Preference Shares, issuable in series, (c) an unlimited number of Brookfield Class A Shares and (d) 85,120 class B limited voting shares (Brookfield Class B Shares).
The company
7. The company was incorporated under the Bermuda Companies Act 1981 on December 10, 2020.
8. The registered and head office of the company is located at 73 Front Street, 5th Floor Hamilton HM 12 Bermuda.
9. The company's principal business is expected to consist of the provision, through its operating subsidiaries, of annuity-based reinsurance products to insurance and reinsurance companies and the direct issuance of pension risk transfer products for pension plan sponsors.
10. The authorized share capital of the company currently consists of an unlimited number of common shares.
11. Brookfield Asset Management currently owns all the company's common shares and therefore controls 100% of the voting securities of the company.
12. The company is not a reporting issuer or the equivalent thereof in any jurisdiction of Canada and is not in default of any applicable requirement under securities legislation.
The Special Dividend
13. Brookfield Asset Management has planned a special dividend of class A exchangeable shares to holders of Brookfield Class A Shares and Brookfield Class B Shares of Brookfield Asset Management (the special dividend).
14. In connection with the special dividend in Canada, the company and Brookfield Asset Management filed a preliminary prospectus on March 31, 2021 (the prospectus), to qualify (i) the exchange rights and call rights described in the prospectus; (ii) the class A exchangeable shares that will be distributed in the special dividend; and (iii) the Brookfield Class A Shares issuable or deliverable upon exchange, redemption or acquisition of such class A exchangeable shares.
15. Upon obtaining a receipt for the final prospectus, the company will become a reporting issuer (or the equivalent thereof) in each of the provinces and territories of Canada.
16. The company and Brookfield Asset Management filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission on March 31, 2021, which registration statement was thereafter amended on May 18, 2021, to register (i) the class A exchangeable shares that will be distributed in the special dividend; and (ii) the Brookfield Class A Shares issuable or deliverable upon exchange, redemption or acquisition of such class A exchangeable shares.
17. Prior to the closing of the special dividend:
(a) the company will amend its share capital such that, following the amendment, the authorized share capital of the company will consist of (i) 1,000,000,000 class A exchangeable shares; (ii) 500,000 class B limited voting shares (class B shares); (iii) 1,000,000,000 class C non-voting shares (class C shares); (iv) 1,000,000,000 Class A Junior Preferred Shares (issuable in series); (v) 1,000,000,000 Class B Junior Preferred Shares (issuable in series); (vi) 100,000,000 Class A Senior Preferred Shares (issuable in series); and (vii) 100,000,000 Class B Senior Preferred Shares (issuable in series); and
(b) Brookfield Asset Management will transfer (i) to BAM Re Holdings Inc., a wholly-owned subsidiary of the company, its existing insurance company assets held through Brookfield Annuity Holdings Inc. and (ii) to North End Re (Cayman) SPC, a wholly-owned subsidiary of the company, 9,106,042 common shares of American Equity Investment Life Holding Company (AEL Holdings) along with the right to acquire the remaining equity interest in AEL Holdings, for a total equity investment of up to 19.9% (but not less than 15.0%) in AEL Holdings.
(c) all holders of Brookfield Class A Shares and Brookfield Class B Shares will be entitled to receive the special dividend. Based on the number of Brookfield Class A Shares and Brookfield Class B Shares expected to be outstanding on the record date for the special dividend, Brookfield Asset Management expects to distribute a number of class A exchangeable shares representing an aggregate of US$500 million. The exact number of class A exchangeable shares distributed to holders of Brookfield Class A Shares and Brookfield Class B Shares will be based on the market price of a Brookfield Class A Share prior to the declaration of the special dividend. No holder will be entitled to receive any fractional interests in the class A exchangeable shares. Holders who would otherwise be entitled to a fractional class A exchangeable share will receive a cash payment.
18. Immediately following closing of the special dividend, the only voting securities of the company will be the class A exchangeable shares and the class B shares. Holders of the class A exchangeable shares will be entitled, among other things, to elect one-half of the board of directors of the company. The holders of the class B shares will be entitled to elect the other one-half of the board of directors of the company and will be entitled to the same distributions as the class A exchangeable shares.
19. Neither the class A exchangeable shares nor the class B shares carry a residual right to participate in the assets of the company upon liquidation or winding-up of the company, and accordingly, are not equity securities under the Legislation.
20. All of the class C shares will be held by Brookfield Asset Management, which will entitle Brookfield Asset Management to the residual economics of the company following payment of amounts due to holders of class A exchangeable shares and class B shares (consisting of any declared and unpaid distributions, and the delivery of Brookfield Class A Shares or the cash equivalent on a redemption or liquidation), and subject to the prior rights of holders of the company's Junior Preferred Shares and Senior Preferred Shares (if any such shares are issued). Following the special dividend, the class C shares will be the only outstanding equity securities of the company.
21. Prior to completion of the special dividend, Brookfield Asset Management and the company will enter into a support agreement (the Support Agreement), pursuant to which Brookfield Asset Management will agree to support the economic equivalence of the class A exchangeable shares by agreeing to take all actions reasonably necessary to enable the company to pay quarterly distributions, the liquidation amount or the amount payable on a redemption of class A exchangeable shares.
22. In addition to the Support Agreement, the exchangeable share provisions will contain terms that provide holders of class A exchangeable shares directly with protections designed to make the class A exchangeable shares the economic equivalent of the Brookfield Class A Shares.
23. An investment in the class A exchangeable shares is intended to be, as nearly as practicable, functionally and economically, equivalent to an investment in Brookfield Class A Shares. As such, the company expects that investors of class A exchangeable shares will hold or purchase class A exchangeable shares as an alternative way of owning Brookfield Class A Shares rather than a separate and distinct investment.
24. The company has received conditional approval to have the class A exchangeable shares listed on the NYSE and TSX.
Qualification to File Short Form Prospectus
25. The company wishes to be eligible to file short form prospectuses under NI 44-101 upon completion of the special dividend. While the company does not currently intend to complete a distribution immediately following the completion of the special dividend, the company's eligibility to file short form and shelf prospectuses is critical to its viability as an issuer of a security that provides investors with an alternative way of owning an interest in Brookfield Asset Management. In addition, there are short time frames associated with financings undertaken in current market conditions. As a result, the relief from the Short Form Prospectus Eligibility Requirements is being sought in advance of the completion of the special dividend and any possible follow on distribution of the company's securities.
26. The qualification criteria for short form prospectus eligibility are outlined in section 2.2 of NI 44-101. Once the company becomes a reporting issuer or the equivalent thereof, the company will satisfy all of the qualification criteria for short form prospectus eligibility in section 2.2 of NI 44-101 with the exception of subsection 2.2(e) which requires that an issuer's equity securities are listed and posted for trading on a short form eligible exchange and that an issuer is not an issuer whose (i) operations have ceased, or (ii) whose principal asset is cash, cash equivalents, or its exchange listing. The term "equity security" is defined under the Legislation as a security that carries a residual right to participate in the earnings of the issuer and, on the liquidation or winding up of the issuer, in its assets. The class A exchangeable shares do not carry a residual right to participate in the assets of the company upon liquidation or winding-up of the company, and accordingly, are not equity securities under the Legislation.
27. In the event that the company undertakes an offering or other distribution of its securities prior to the filing of its audited financial statements for the year ended December 31, 2021, the company intends to rely on the exemption in subsection 2.7(1) of NI 44-101 from the requirements to have (i) current annual financial statements and (ii) a current AIF.
28. The class A exchangeable shares will provide holders thereof with a security of a Canadian issuer having an economic return equivalent an investment in Brookfield Class A Shares.
29. It is appropriate for the class A exchangeable shares to be treated as equity securities for the purposes of NI 44-101 since the class A exchangeable shares are, in effect, the economic and voting equivalent of the Brookfield Class A Shares and the Brookfield Class A Shares do qualify as equity securities under NI 44-101.
30. Except for not meeting the Short Form Prospectus Eligibility Requirements, the company would otherwise be qualified to file a prospectus in the form of a short form prospectus pursuant to, and in accordance with, NI 44-101.
Qualification of At-the-Market Distribution
31. Pursuant to section 9.3(1)(b) of NI 44-102, only equity securities may be distributed by way of an at-the-market distribution using the shelf procedures.
32. Based upon the rationale provided in paragraphs 26, 28, 29 and 30 above, it is not prejudicial to the public interest to exempt the company from the At-the-Market Distribution Requirements.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
1. the company does not have to comply with the Short Form Prospectus Eligibility Requirements so long as:
(a) the company is otherwise qualified to file a preliminary short form prospectus under section 2.2 of NI 44-101;
(b) the class A exchangeable shares are listed and posted for trading on a short form eligible exchange (as defined in NI 44-101);
(c) the company is not an issuer whose operations have ceased;
(d) the company is not an issuer whose principal asset is cash, cash equivalents, or its exchange listing;
(e) the Brookfield Class A Shares qualify as equity securities under NI 44-101, and
2. the company does not have to comply with the At-the-Market Distribution Requirements so long as:
(a) the company otherwise satisfies the conditions set out in section 9.3 of NI 44-102 to distribute securities under an ATM prospectus (as defined in NI 44-102) as part of an at-the-market distribution;
(b) the security being distributed is a class A exchangeable share; and
(c) the Brookfield Class A Shares qualify as equity securities under NI 44-102.
Application File #: 2021/0219