Brookfield Infrastructure Partners L.P. and Brookfield Infrastructure Corporation
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- partnership creates corporation to provide investors with alternative way to hold its units -- corporation issues exchangeable shares whose terms are structured so that each exchangeable share is functionally and economically equivalent to a partnership unit -- each exchangeable share provides an equivalent economic return as a partnership unit -- both the partnership and the corporation are reporting issuers -- related party transactions between the partnership and the corporation, and vice versa, will be required from time to time, and the corporation will also, from time to time, enter into related party transactions with persons other than the partnership -- the partnership may not be party to each of these related party transactions but each such transaction will be treated by the partnership as a related party transaction -- related party transactions between the partnership and the corporation are exempt from the related party transaction requirements, subject to conditions -- the corporation is exempt from related party transaction requirements, subject to conditions, including that the partnership will comply with the related party transaction requirements for each of the corporation's related party transactions as though the partnership entered into such related party transaction directly -- partnership may include corporation's exchangeable shares when calculating market capitalization for the purposes of using the 25% market capitalization exemption for certain related party transactions, subject to conditions.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, Part 5, and 9.1.
December 24, 2024
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 INFRASTRUCTURE PARTNERS L.P. AND BROOKFIELD INFRASTRUCTURE CORPORATION
DECISION
Background
The principal regulator in the Jurisdiction has received an application from Brookfield Infrastructure Partners L.P. (BIP) and Brookfield Infrastructure Corporation (formerly 1505109 B.C. Ltd.) (New BIPC, and together with BIP, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:
(a) BIP be exempt from the requirements of Part 5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101, and such requirements, the Related Party Transaction Requirements) in connection with any related party transaction of BIP with New BIPC or any of New BIPC's subsidiary entities (the BIP Related Party Relief);
(b) New BIPC be exempt from the Related Party Transaction Requirements in connection with any related party transaction of New BIPC with:
(i) BIP or any of BIP's subsidiary entities (together but excluding New BIPC, the BIP Group, and such relief, the Group Related Party Relief); and
(ii) persons not in the BIP Group (the Non-Group Related Party Relief and collectively with the Group Related Party Relief, the New BIPC Related Party Relief); and
(c) BIP be exempt from the requirements of sections 5.4 and 5.6 of MI 61-101 (the Valuation and Minority Approval Requirements) in connection with any related party transaction of BIP entered into indirectly through Brookfield Infrastructure L.P. (Holding LP) or any subsidiary entity of Holding LP, if that transaction would qualify for the transaction size exemptions set out in sections 5.5(a) and 5.7(1)(a) of MI 61-101 if the class A exchangeable subordinate voting shares of New BIPC (the New Exchangeable Shares) and the class A.2 non-voting shares of Brookfield Infrastructure Corporation (the Class A.2 Shares) were included in the calculation of BIP's market capitalization (the Transaction Size Relief, collectively with the BIP Related Party Relief and the New BIPC Related Party Relief, the Exemption Sought).
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 Filers have provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Manitoba, New Brunswick, Québec and Saskatchewan.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filers:
Relevant Entities
BIP
1. BIP is an exempted limited partnership established, registered and in good standing under the laws of Bermuda. BIP's registered and head office is located at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.
2. BIP is a reporting issuer in all of the provinces and territories of Canada and is an SEC foreign issuer within the meaning of section 1.1 of National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102) and satisfies its continuous disclosure obligations by complying with U.S. federal securities laws as permitted under NI 71-102. BIP is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
3. The authorized capital of BIP consists of: (a) an unlimited number of non-voting limited partnership units (the BIP Units); (b) an unlimited number of class A preferred limited partnership units; and (c) an unlimited number of general partnership units. As of October 15, 2024, there were 461,754,508 BIP Units (784,078,904 BIP Units assuming the exchange of redeemable partnership units of Holding LP (the Redeemable Partnership Units) and Exchangeable Shares (as defined below)), 43,901,312 class A preferred limited partnership units and one (1) general partnership unit issued and outstanding.
4. The BIP Units are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbols "BIP" and "BIP.UN", respectively.
5. Brookfield Infrastructure Partners Limited (BIP GP), a wholly-owned subsidiary of Brookfield Corporation (Brookfield), holds the general partnership unit of BIP.
6. BIP's sole material asset is its managing general partnership interest and preferred limited partnership interest in Holding LP, a Bermuda exempted limited partnership established, registered and in good standing under the laws of Bermuda. The authorized capital of Holding LP is comprised of: (a) special general partner units held by Brookfield Infrastructure Special L.P. (the Special General Partner), an indirect subsidiary of Brookfield; (b) class A preferred units held by BIP; (c) managing general partner units held by BIP; and (d) Redeemable Partnership Units held indirectly by Brookfield. The Special General Partner has, pursuant to the limited partnership agreement of Holding LP, delegated to BIP, as managing general partner of the Holding LP, all of the rights, powers and authority granted to it as a general partner under applicable law. Accordingly, all management powers over the activities and affairs of the Holding LP are exclusively vested in BIP.
7. Pursuant to the terms of the limited partnership agreement of Holding LP, the special general partner of Holding LP receives incentive distributions that are calculated by reference to the distributions that are ultimately paid to holders of BIP Units. Accordingly, the special general partner units of Holding LP effectively represent an economic interest in the collective operations of BIP, rather than Holding LP.
8. The Redeemable Partnership Units are, in all material respects, economically equivalent to the BIP Units and effectively represent an economic interest in the collective operations of BIP, rather than Holding LP.
9. As the class A preferred units and managing general partner units of Holding LP are held by BIP, and the special general partner units of Holding LP and Redeemable Partnership Units effectively represent economic interests in the collective operations of BIP rather than Holding LP, (a) Holding LP is, in effect, a wholly-owned subsidiary of BIP, and (b) direct and indirect wholly-owned subsidiaries of Holding LP are, in effect, wholly-owned subsidiaries of BIP.
BIPC
10. Brookfield Infrastructure Holdings Corporation (formerly Brookfield Infrastructure Corporation) (BIPC) is a corporation existing and in good standing under the Business Corporations Act (British Columbia). BIPC's registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. BIPC's head office is located at 250 Vesey Street, 15th Floor, New York, New York, 10281, United States of America.
11. BIPC is a reporting issuer 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.
12. BIPC was created, in part, to provide investors that would not otherwise invest in BIP with an opportunity to gain access to BIP's portfolio of infrastructure assets, and to provide investors with the flexibility to own, through the ownership of an Exchangeable Share, the economic equivalent of a BIP Unit. The rights, privileges, restrictions and conditions attached to each Exchangeable Share are such that each Exchangeable Share is, as nearly as practicable, functionally and economically, equivalent to a BIP Unit.
13. Prior to completion of the Reorganization (as defined below):
(a) the authorized share capital of BIPC consisted of: (i) an unlimited number of class A exchangeable subordinate voting shares (the Exchangeable Shares); (ii) an unlimited number of class B multiple voting shares (the Class B Shares); (iii) an unlimited number of class C non-voting shares (the Class C Shares); (iv) an unlimited number of class A senior preferred shares (issuable in series); and (v) an unlimited number of class B junior preferred shares (issuable in series). As of October 15, 2024, there were 132,024,440 Exchangeable Shares, two (2) Class B Shares, 11,117,660 Class C Shares, zero class A senior preferred shares, and zero class B junior preferred shares issued and outstanding;
(b) the only voting securities of BIPC were the Exchangeable Shares and the Class B Shares. Holders of Exchangeable Shares were entitled to one (1) vote per Exchangeable Share held and holders of Class B Shares were entitled to cast, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the Exchangeable Shares. Accordingly, the Exchangeable Shares collectively represented a 25% voting interest in BIPC and the Class B Shares collectively represented a 75% voting interest in BIPC;
(c) neither the Exchangeable Shares nor the Class B Shares carried a residual right to participate in the assets of BIPC upon liquidation or winding-up of BIPC, and accordingly, were not equity securities under the Legislation. The Class C Shares were the only equity securities of BIPC;
(d) BIP, indirectly through subsidiary entities, owned 100% of the issued and outstanding Class B Shares and 100% of the Class C Shares. Through its ownership of these securities, BIP (i) had a 75% voting interest in BIPC, thereby controlling BIPC and the appointment and removal of directors of BIPC, and (ii) was entitled to all of the residual value in BIPC after payment in full of the amount due to holders of Exchangeable Shares and Class B Shares, and subject to the prior rights of holders of preferred shares;
(e) the Class B Shares and the Class C Shares were not transferable except to BIP or persons controlled by BIP; and
(f) the board of directors of BIPC consisted of each of the directors of BIP GP and one additional director.
14. The Exchangeable Shares are listed on the NYSE and the TSX under the symbol "BIPC".
15. In connection with the Reorganization:
(a) BIPC applied to cease to be a reporting issuer; and
(b) the Exchangeable Shares will be delisted from the NYSE and the TSX.
Brookfield
16. Brookfield (formerly Brookfield Asset Management Inc.) is a corporation existing and in good standing under the Business Corporations Act (Ontario). Brookfield's registered and head office is located at Suite 100, Brookfield Place, 181 Bay Street, Toronto, Ontario, M5J 2T3.
17. Brookfield is a reporting issuer 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.
18. The Class A Limited Voting Shares of Brookfield are listed on the NYSE and the TSX under the symbol "BN".
19. Prior to completion of the Reorganization, Brookfield and Brookfield Wealth Solutions Ltd. and their subsidiaries held an approximate 26.6% economic interest in BIP on a fully-exchanged basis through their indirect ownership of BIP Units, Redeemable Partnership Units, and Exchangeable Shares.
20. Following completion of the Reorganization, Brookfield and Brookfield Wealth Solutions Ltd. and their subsidiaries hold an approximate 26.6% economic interest in BIP on a fully-exchanged basis through their indirect ownership of BIP Units, Redeemable Partnership Units, New Exchangeable Shares, and Class A.2 Shares.
21. Brookfield indirectly holds a 100% voting interest in BIP through its ownership of the general partnership unit of BIP.
22. BIP, Holding LP, BIPC, New BIPC and certain of their subsidiaries have retained Brookfield and its related entities to provide management, administrative and advisory services under a master services agreement.
New BIPC
23. New BIPC is a corporation existing and in good standing under the Business Corporations Act (British Columbia). New BIPC was incorporated on October 3, 2024. New BIPC's registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. New BIPC's head office is located at 250 Vesey Street, 15th Floor, New York, New York, 10281, United States of America.
24. New BIPC is a reporting issuer 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.
25. The authorized share capital of New BIPC consists of: (a) an unlimited number of New Exchangeable Shares; and (b) an unlimited number of class B multiple voting shares (the New Class B Shares). Prior to completion of the Reorganization, there were no New Exchangeable Shares and one (1) New Class B Share issued and outstanding, which is held by Brookfield Infrastructure Holdings (Canada) Inc. (CanHoldco), a subsidiary entity of BIP.
26. Except as provided below, holders of New Exchangeable Shares are entitled to one (1) vote per New Exchangeable Share held and holders of New Class B Shares are entitled to cast, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the New Exchangeable Shares. Accordingly, the New Exchangeable Shares collectively represent a 25% voting interest in New BIPC and the New Class B Shares collectively represent a 75% voting interest in New BIPC.
27. At any time that no New Exchangeable Shares are outstanding or for any vote held only in respect of the New Class B Shares, holders of New Class B Shares are entitled to cast one (1) vote per New Class B Share.
28. The New Exchangeable Shares do not carry a residual right to participate in the assets of New BIPC upon liquidation or winding-up of New BIPC, and accordingly, are not equity securities under the Legislation. The New Class B Shares are the only equity securities of New BIPC.
29. BIP, indirectly through its subsidiary entities, owns 100% of the issued and outstanding New Class B Shares. The New Class B Shares are not transferable except to BIP or persons controlled by BIP. Through its ownership of New Class B Shares, BIP (a) has a 75% voting interest in New BIPC, thereby controlling New BIPC and the appointment and removal of directors of New BIPC, and (b) is entitled to all of the residual value in New BIPC after payment in full of the amount due to holders of New Exchangeable Shares.
The Reorganization
30. BIPC currently qualifies as a "mutual fund corporation" as defined in the Income Tax Act (Canada) (the Tax Act).
31. The 2024 Canadian federal budget included proposed amendments to the tax rules relating to mutual fund corporations which, if enacted as proposed, were expected to result in additional costs to BIPC.
32. On October 9, 2024, BIP, BIPC, New BIPC and Brookfield entered into an arrangement agreement in respect of a reorganization (the Reorganization) designed to preserve the current benefits received by holders of Exchangeable Shares from holding their investments in the business of BIP and its subsidiary entities through a corporation that is intended to qualify as a "mutual fund corporation" (as defined in the Tax Act).
33. On December 3, 2024, the Reorganization was approved at a special meeting of holders of Exchangeable Shares and Class B Shares (the Meeting) by: (a) not less than 662/3% of the votes cast at the Meeting by holders of Exchangeable Shares and holders of Class B Shares, voting together; (b) not less than 662/3% of the votes cast at the Meeting by holders of Exchangeable Shares, voting separately as a class; and (c) not less than 662/3% of the votes cast at the Meeting by holders of Class B Shares, voting separately as a class.
34. On December 9, 2024, the Supreme Court of British Columbia approved the Reorganization.
35. As part of the Reorganization:
(a) BIPC amended its articles to create two (2) new classes of securities: class A.1 exchangeable subordinate voting shares (the Class A.1 Shares) and Class A.2 Shares;
(b) holders of Exchangeable Shares (other than Brookfield and its subsidiaries) received one (1) New Exchangeable Share from New BIPC for each Exchangeable Share held;
(c) New BIPC transferred the Exchangeable Shares received from holders of Exchangeable Shares (other than Brookfield and its subsidiaries) to BIPC in exchange for Class A.1 Shares on a one-for-one basis, and the Exchangeable Shares were cancelled by BIPC;
(d) Brookfield and its subsidiaries transferred the Exchangeable Shares held by them to BIPC in exchange for Class A.2 Shares on a one-for-one basis, and the Exchangeable Shares were cancelled by BIPC;
(e) CanHoldco transferred one (1) Class B Share to New BIPC in exchange for one (1) New Class B Share;
(f) BIPC amended its articles to, among other things, rename BIPC to "Brookfield Infrastructure Holdings Corporation" and remove the Exchangeable Shares from its authorized share capital;
(g) BIPC applied to cease to be a reporting issuer;
(h) the Exchangeable Shares will be delisted from the NYSE and the TSX;
(i) New BIPC was renamed "Brookfield Infrastructure Corporation" and the New Exchangeable Shares will be listed on the NYSE and the TSX under the symbol "BIPC";
(j) New BIPC, BIPC and BIP entered into a pairing agreement pursuant to which the parties have agreed that New BIPC will, at all times, hold such number of Class A.1 Shares equal to the number of New Exchangeable Shares that are outstanding to support the duties and obligations of New BIPC to holders of New Exchangeable Shares (the Pairing Agreement); and
(k) New BIPC entered into an option agreement with CanHoldco that provides New BIPC with the right to acquire any or all of the Class B Shares and/or Class C Shares held by CanHoldco in exchange for newly issued New Class B Shares.
36. Following completion of the Reorganization, New BIPC:
(a) became a reporting issuer in each of the provinces and territories of Canada;
(b) qualifies as a "mutual fund corporation" as defined in the Tax Act;
(c) has taken the place of BIPC and serves as the entity through which investors who do not wish to hold BIP Units directly may hold their interests in BIP through the ownership of a New Exchangeable Share, which is economically equivalent to a BIP Unit; and
(d) carries on its business through BIPC, whose Class A.1 Shares and one (1) Class B Share are New BIPC's sole material assets.
37. BIP consolidates New BIPC and BIPC and their businesses in BIP's financial statements, and the collective operations of BIP and its subsidiaries (including New BIPC, BIPC and their subsidiary entities) are the same as they were prior to the creation of New BIPC and occurrence of the transactions conducted in connection with, and to facilitate, the Reorganization.
38. The board of directors of New BIPC consists of the directors that were on the board of directors of BIPC immediately prior to completion of the Reorganization.
39. New BIPC is not a wholly-owned subsidiary entity of BIP; BIP does not own, directly or indirectly, all of the voting securities of New BIPC because members of the public hold New Exchangeable Shares and Brookfield and its subsidiaries hold Class A.2 Shares, which are exchangeable for New Exchangeable Shares (subject to the Ownership Cap (as defined below)). However, by virtue of the terms of the New Class B Shares, BIP holds a 75% voting interest in New BIPC thereby controlling New BIPC and the appointment and removal of directors of New BIPC. The voting rights attached to the New Exchangeable Shares do not allow holders of New Exchangeable Shares to affect the control of New BIPC. The voting right attached to each New Exchangeable Share is expected to assist with index inclusion.
The New Exchangeable Shares
40. The New Exchangeable Shares have substantially the same terms as the Exchangeable Shares. Each New Exchangeable Share has been structured with the intention of providing an economic return equivalent to a BIP Unit, and the rights, privileges, restrictions and conditions attached to each New Exchangeable Share (the New Exchangeable Share Provisions) are such that each New Exchangeable Share is, as nearly as practicable, functionally and economically, equivalent to a BIP Unit. In particular:
(a) each New Exchangeable Share is exchangeable at the option of a holder for one (1) BIP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of New BIPC) (an Exchange);
(b) the New Exchangeable Shares are redeemable by New BIPC at any time (including following a notice requiring redemption having been given by BIP) for BIP Units (or their cash equivalent, at New BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a Redemption);
(c) upon a liquidation, dissolution or winding up of New BIPC, holders of New Exchangeable Shares are entitled to receive BIP Units (or their cash equivalent, at New BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) and not any remaining property or assets of New BIPC following such payment (a New BIPC Liquidation);
(d) upon a liquidation, dissolution or winding up of BIP (a BIP Liquidation), including where substantially concurrent with a New BIPC Liquidation, all of the New Exchangeable Shares will be automatically redeemed for BIP Units (or their cash equivalent, at New BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events); and
(e) subject to applicable law and in accordance with the New Exchangeable Share Provisions, each New Exchangeable Share entitles the holder to dividends from New BIPC payable at the same time as, and equivalent to, each distribution on a BIP Unit. The New Exchangeable Share Provisions also provide that if a distribution is declared on the BIP Units and an equivalent dividend is not declared and paid concurrently on the New Exchangeable Shares, then the undeclared or unpaid amount of such dividend accrues and accumulates and is to be paid upon the first to occur of any of the circumstances contemplated by paragraphs (a) to (d) above, if not yet paid.
41. Upon being notified by New BIPC that New BIPC has received a request for an Exchange, BIP has an overriding call right to purchase (or have one of its affiliates purchase) all of the New Exchangeable Shares that are the subject of the Exchange notice from the holder of New Exchangeable Shares for BIP Units (or their cash equivalent, at BIP's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
42. Upon being notified by New BIPC that it intends to conduct a Redemption, BIP has an overriding call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding New Exchangeable Shares for BIP Units (or their cash equivalent, at BIP's election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
43. Upon the occurrence of a BIP Liquidation or a New BIPC Liquidation, BIP has an overriding liquidation call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding New Exchangeable Shares on the day prior to the effective date of such BIP Liquidation or New BIPC Liquidation for BIP Units on a one-for-one basis (subject to adjustment to reflect certain capital events).
44. In connection with the Reorganization, Brookfield entered into a rights agreement (the Rights Agreement) pursuant to which it agreed that, until March 31, 2025, Brookfield will guarantee New BIPC's obligation to deliver BIP Units or their cash equivalent in connection with an Exchange. The Rights Agreement replaced the rights agreement in respect of exchanges of Exchangeable Shares.
45. Investments in New Exchangeable Shares are, as nearly as practicable, functionally and economically, equivalent to an investment in BIP Units. BIP expects that:
(a) investors of New Exchangeable Shares will purchase New Exchangeable Shares as an alternative way of owning BIP Units rather than a separate and distinct investment; and
(b) the market price of the New Exchangeable Shares will be significantly impacted by (i) the combined business performance of New BIPC and BIP as a single economic unit, and (ii) the market price of the BIP Units, in a manner that results in the market price of the New Exchangeable Shares closely tracking the market price of the BIP Units.
Share Capital of BIPC after the Reorganization
46. Following completion of the Reorganization:
(a) the authorized share capital of BIPC consists of: (i) an unlimited number Class A.1 Shares; (ii) an unlimited number of Class A.2 Shares; (iii) an unlimited number of Class B Shares; (iv) an unlimited number of Class C Shares; (v) an unlimited number of class A senior preferred shares (issuable in series); and (vi) an unlimited number of class B junior preferred shares (issuable in series); and
(b) there are (based on the issued and outstanding share capital of BIPC as of October 15, 2024):
(i) 119,011,651 Class A.1 Shares issued and outstanding, all of which are held by New BIPC;
(ii) 13,012,789 Class A.2 Shares issued and outstanding, all of which are held by Brookfield and its subsidiaries;
(iii) three (3) Class B Shares issued and outstanding, two (2) of which are held by CanHoldco, and one (1) of which is held by New BIPC;
(iv) 11,117,660 Class C Shares issued and outstanding, all of which are held by CanHoldco;
(v) zero class A senior preferred shares issued and outstanding; and
(vi) zero class B junior preferred shares issued and outstanding.
47. Other than the ability to receive additional dividends at such time as there are no unpaid dividends in respect of the Class A.1 Shares or the Class A.2 Shares, and if, as and when declared by the board of directors of BIPC (the Additional Dividends), the Class A.1 Shares have terms that are substantially the same as the New Exchangeable Shares, including with respect to the exchange mechanics, dividend rights, voting rights and rights on liquidation. It is expected that Additional Dividends may be declared from time to time in order to fund expenses of New BIPC.
48. The Class A.1 Shares carry one (1) vote per share, and the holders of the Class A.1 Shares are entitled to an aggregate 25% voting interest in BIPC. Each Class A.1 Share has been structured with the intention of providing an economic return equivalent to a BIP Unit and the rights, privileges, restrictions and conditions attached to each Class A.1 Share (the A.1 Exchangeable Share Provisions) are such that each Class A.1 Share is, as nearly as practicable, functionally and economically, equivalent to a New Exchangeable Share and a BIP Unit. In particular:
(a) each Class A.1 Share is exchangeable at the option of a holder for one (1) BIP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC);
(b) the Class A.1 Shares are redeemable by BIPC at any time (including following a notice requiring redemption having been given by BIP) for BIP Units (or their cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events);
(c) upon a liquidation, dissolution or winding up of BIPC (a BIPC Liquidation), holders of Class A.1 Shares are entitled to receive BIP Units (or their cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events) and not any remaining property or assets of BIPC following such payment;
(d) upon a BIP Liquidation, including where substantially concurrent with a BIPC Liquidation, all of the Class A.1 Shares will be automatically redeemed for BIP Units (or their cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events); and
(e) subject to applicable law and in accordance with the A.1 Exchangeable Share Provisions, each Class A.1 Share entitles the holder to dividends from BIPC payable at the same time as, and equivalent to, each distribution on a BIP Unit. The A.1 Exchangeable Share Provisions also provide that if a distribution is declared on the BIP Units and an equivalent dividend is not declared and paid concurrently on the Class A.1 Shares, then the undeclared or unpaid amount of such dividend accrues and accumulates and is to be paid upon the first to occur of any of the circumstances contemplated by paragraphs (a) to (d) above, if not yet paid.
49. As required pursuant to the terms of the Pairing Agreement, any and all Class A.1 Shares will be held by New BIPC. New BIPC may use the exchange right pursuant to the A.1 Exchangeable Share Provisions to obtain BIP Units necessary, from time to time, to satisfy exchanges of the New Exchangeable Shares.
50. Each Class A.2 Share is non-voting and structured with the intention of providing an economic return equivalent to a BIP Unit, and the rights, privileges, restrictions and conditions attached to each Class A.2 Share (the A.2 Exchangeable Share Provisions) are such that each Class A.2 Share is, as nearly as practicable, functionally and economically, equivalent to a New Exchangeable Share and a BIP Unit. In particular:
(a) each Class A.2 Share is exchangeable at the option of a holder for (i) one (1) New Exchangeable Share (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC), or (ii) one (1) BIP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC), provided that, after giving effect to any such exchange, Brookfield and its subsidiaries are not permitted to receive a number of New Exchangeable Shares that would result in Brookfield and its subsidiaries owning 9.5% or more of the aggregate fair market value of all issued and outstanding shares of New BIPC (the Ownership Cap);
(b) the Class A.2 Shares are redeemable by BIPC at any time (including following a notice requiring redemption having been given by BIP) for (i) one (1) New Exchangeable Share (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC), or (ii) one (1) BIP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC);
(c) upon a BIPC Liquidation, holders of Class A.2 Shares are entitled to receive one (1) BIP Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BIPC) and not any remaining property or assets of BIPC following such payment;
(d) upon a BIP Liquidation, including where substantially concurrent with a BIPC Liquidation, all of the Class A.2 Shares will be automatically redeemed for BIP Units (or their cash equivalent, at BIPC's election) on a one-for-one basis (subject to adjustment to reflect certain capital events); and
(e) subject to applicable law and in accordance with the A.2 Exchangeable Share Provisions, each Class A.2 Share entitles the holder to dividends from BIPC payable at the same time as, and equivalent to, each distribution on a BIP Unit. The A.2 Exchangeable Share Provisions also provide that if a distribution is declared on the BIP Units and an equivalent dividend is not declared and paid concurrently on the Class A.2 Shares, then the undeclared or unpaid amount of such dividend accrues and accumulates and is to be paid upon the first to occur of any of the circumstances contemplated by paragraphs (a) to (d) above, if not yet paid.
51. The Ownership Cap is designed to preserve New BIPC's status as a "mutual fund corporation" under the Tax Act.
52. The Class B Shares continue to be structured to provide the holders with control of BIPC. In particular:
(a) holders of Class B Shares are entitled to, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the Class A.1 Shares. As a result, holders of Class B Shares have a 75% voting interest in BIPC and holders of Class A.1 Shares have a 25% voting interest in BIPC; and
(b) in the event that a share/stock dividend is declared and paid on the Class A.1 Shares, a share/stock dividend will be paid to holders of Class B Shares in an equal number of Class B Shares as Class A.1 Shares are paid to holders of Class A.1 Shares.
53. The only voting securities of BIPC are the Class A.1 Shares and the Class B Shares.
54. The Class C Shares were unaffected by the Reorganization and continue to be structured to provide the holders thereof with all of the residual value in BIPC. In particular:
(a) subject to applicable law and in accordance with the terms of the Class C Shares, only holders of Class C Shares are entitled to a residual right to participate, on a BIPC Liquidation, in its assets;
(b) subject to applicable law and in accordance with the term of the Class C Shares, subject to the prior rights of the holders of the Class A.1 Shares and Class A.2 Shares and of any preferred shares then outstanding, the holders of Class C Shares are entitled to receive dividends if, as, and when declared by the board of directors of BIPC; and
(c) share/stock dividends, if any, will be paid to holders of Class C Shares in an equal number of Class C Shares as Class A.1 Shares are paid to holders of Class A.1 Shares and Class A.2 Shares are paid to holders of Class A.2 Shares.
55. The Class B Shares and Class C Shares continue to be subject to restrictions on transfer, other than to BIP or persons controlled by BIP.
New BIPC Related Party Transactions
BIP Related Party Relief and Group Related Party Relief
56. The Related Party Transaction Requirements do not apply to an issuer carrying out a related party transaction if:
(a) as provided under paragraph 5.1(d) of MI 61-101, the parties to the transaction consist solely of (i) an issuer and one or more of its wholly-owned subsidiary entities, or (ii) wholly-owned subsidiary entities of the same issuer. A person is considered to be a "wholly-owned subsidiary entity" of an issuer if the issuer owns, directly or indirectly, all of the voting and equity securities and securities convertible into voting and equity securities of the person; and/or
(b) as provided under paragraph 5.1(g) of MI 61-101 (the Downstream Transaction Carve-Out), the transaction is a downstream transaction for the issuer. A "downstream transaction" means, for an issuer, a transaction between the issuer and a related party of the issuer if, at the time the transaction is agreed to, (i) the issuer is a control person of the related party, and (ii) to the knowledge of the issuer after reasonable inquiry, no related party of the issuer, other than a wholly-owned subsidiary entity of the issuer, beneficially owns or exercises control or direction over, other than through its interest in the issuer, more than five per cent of any class of voting or equity securities of the related party that is a party to the transaction.
57. Section 1.3 of MI 61-101 provides that, for the purposes of MI 61-101, a transaction of a wholly-owned subsidiary entity of an issuer is deemed to be a transaction of the issuer.
58. Related party transactions between BIP and New BIPC will be required for the operation of the New Exchangeable Share Provisions and in connection with ordinary course financial support arrangements which may be entered into from time to time.
59. The only voting securities of New BIPC are the New Exchangeable Shares and the New Class B Shares.
60. Holders of New Exchangeable Shares are entitled to one (1) vote per New Exchangeable Share held and holders of New Class B Shares are entitled to cast, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the New Exchangeable Shares.
61. The New Exchangeable Shares do not carry a residual right to participate in the assets of New BIPC upon liquidation or winding-up of New BIPC, and accordingly, are not equity securities under the Legislation. The New Class B Shares are the only equity securities of New BIPC.
62. All of the New Class B Shares are indirectly owned by BIP and none of them are transferable except to an affiliate of BIP. Accordingly, all of the equity securities of New BIPC are held indirectly by BIP.
63. New BIPC is not a wholly-owned subsidiary of BIP; BIP does not own, directly or indirectly all of the voting securities of New BIPC because members of the public hold New Exchangeable Shares and Brookfield and its subsidiaries hold Class A.2 Shares, which are exchangeable for New Exchangeable Shares (subject to the Ownership Cap). However, by virtue of the terms of the New Class B Shares, BIP holds a 75% voting interest in New BIPC thereby controlling New BIPC and the appointment and removal of directors of New BIPC.
64. BIP will not be able to rely on the Downstream Transaction Carve-Out because Brookfield and its subsidiaries beneficially own or exercise control or direction over, more than five per cent of the New Exchangeable Shares, as it holds, directly or indirectly, 100% of the Class A.2 Shares, which are exchangeable into New Exchangeable Shares, representing more than 5% of the New Exchangeable Shares on a fully-exchanged basis. However, as it relates to BIP, the interests of Brookfield, as the indirect holder of the general partnership unit of BIP, the special general partner units of Holding LP, and Redeemable Partnership Units, are fully aligned with the interests of BIP.
65. As the alternative investment vehicle of BIP for investors who prefer owning securities through a corporation, New BIPC is, in effect, an alter ego of BIP.
66. New BIPC is a controlled subsidiary of BIP and BIP consolidates New BIPC and its businesses in BIP's financial statements.
67. By virtue of the New Exchangeable Share Provisions, the economic rights of the holders of the New Exchangeable Shares will not be affected by transactions between New BIPC and the BIP Group. BIP, as the sole holder of equity securities of New BIPC, will receive any benefit and/or bear any detriment from related party transactions between New BIPC and the BIP Group.
68. Minority approval is required of every class of affected securities, being equity securities of the issuer. For New BIPC, minority approval of a related party transaction of New BIPC with the BIP Group would be sought from the holders of its New Class B Shares, all of which are held by BIP. BIP, as the counterparty to such a related party transaction, does not require the protections of MI 61-101.
Non-Group Related Party Relief
69. It is anticipated that New BIPC will, from time to time, enter into related party transactions with persons not in the BIP Group (Other New BIPC Related Party Transactions).
70. A member of the BIP Group may not be a party to each Other New BIPC Related Party Transaction entered into. However, every Other New BIPC Related Party Transaction will indirectly be a related party transaction for BIP and will be treated by BIP as a related party transaction of BIP.
71. Subject to the availability of an exemption, New BIPC would be required to obtain: (a) a formal valuation in respect of the non-cash assets involved in the Other New BIPC Related Party Transaction; and (b) minority approval for the Other New BIPC Related Party Transaction from the holders of every class of affected securities of New BIPC voting separately as a class, excluding the votes attached to affected securities held by the persons enumerated in section 8.1(2) of MI 61-101.
72. Minority approval is required of every class of affected securities, being equity securities of the issuer. The New Exchangeable Shares are not equity securities and thus are not entitled to vote for the purposes of minority approval under MI 61-101. The only equity securities of New BIPC are the New Class B Shares, all of which are held by BIP. BIP, as an entity for which each Other New BIPC Related Party Transaction would also constitute a related party transaction, does not require the protections of MI 61-101.
73. By virtue of the New Exchangeable Share Provisions, the economic rights of the holders of BIP Units and New Exchangeable Shares will be affected in an identical manner in respect of any related party transaction entered into by either BIP or New BIPC. A related party transaction for New BIPC is, in effect, a related party transaction for BIP.
74. BIP, as the sole holder of the equity securities of New BIPC, will receive any benefit and/or bear any detriment from any Other New BIPC Related Party Transaction entered into.
75. A majority of any committee of independent directors of BIP that considers an Other New BIPC Related Party Transaction will be comprised of directors who are also directors of New BIPC.
76. New BIPC is the entity through which members of the public who do not wish to hold BIP Units directly may hold their interests in BIP, and BIP is the entity through which holders of New Exchangeable Shares, Class A.2 Shares and BIP Units hold their interests in the collective operations of BIP and its subsidiaries, including New BIPC and its subsidiaries. BIP, New BIPC and BIPC are a single economic entity.
77. BIP will comply with the Related Party Transaction Requirements for each Other New BIPC Related Party Transaction as though BIP entered into the Other New BIPC Related Party Transaction directly.
78. Other than where a member of the BIP Group is also party to the Other New BIPC Related Party Transaction, in which case any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements (including for the Other New BIPC Related Party Transaction) will be in respect of the BIP Group (including New BIPC and New BIPC's subsidiary entities) on a consolidated basis:
(a) the subject matter of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other New BIPC Related Party Transaction and the value or range of values of such subject matter would be identical to any formal valuation obtained by New BIPC for the same Other New BIPC Related Party Transaction; and
(b) the form and substance of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other New BIPC Related Party Transaction would be identical, in all material respects, to any formal valuation obtained by New BIPC for the same Other New BIPC Related Party Transaction.
79. Any and all disclosure documents in connection with an Other New BIPC Related Party Transaction, including any formal valuations, information circulars or material change reports, will be filed on the SEDAR+ profiles of both BIP and New BIPC.
80. Holders of New Exchangeable Shares who wish to vote at the BIP level may do so by conducting an Exchange of New Exchangeable Shares for BIP Units.
Market Capitalization Calculation
81. It is anticipated that BIP will, from time to time, enter into transactions with certain related parties, including Brookfield and its affiliates (other than BIP and its related entities, including New BIPC) indirectly through Holding LP and its subsidiaries (including New BIPC and its subsidiaries).
82. The Valuation and Minority Approval Requirements require, subject to the availability of an exemption, that an issuer obtain: (a) a formal valuation of the transaction in a form satisfying the requirements of MI 61-101 by an independent valuator; and (b) approval of the transaction by disinterested holders of the affected securities of the issuer.
83. A related party transaction that is subject to MI 61-101 may be exempt from the Valuation and Minority Approval Requirements if, at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, exceeds 25% of the issuer's market capitalization (the Market Cap Exemption).
84. It is unclear whether BIP would be entitled to rely on the Market Cap Exemption available under the Legislation because the definition of market capitalization in the Legislation does not contemplate securities of another entity that are exchangeable into equity securities of the issuer.
85. The New Exchangeable Shares represent part of the equity value of BIP and are functionally and economically equivalent to the BIP Units. As a result of the New Exchangeable Share Provisions, holders of New Exchangeable Shares have the ability to receive a BIP Unit or its cash equivalent (the form of payment to be determined at the election of New BIPC) and will receive identical distributions to the BIP Units, as and when declared by the board of directors of New BIPC. Moreover, the economic interests that underlie the New Exchangeable Shares are identical to those underlying the BIP Units; namely, the assets and operations held directly or indirectly by BIP.
86. The Class A.2 Shares also represent part of the equity value of BIP and are functionally and economically equivalent to the New Exchangeable Shares and the BIP Units. As a result of the A.2 Exchangeable Share Provisions, holders of Class A.2 Shares have the ability to receive a New Exchangeable Share or a BIP Unit (or the applicable cash equivalent at the election of BIPC) and will receive identical distributions to the BIP Units, as and when declared by the board of directors of BIPC. Moreover, the economic interests that underlie the Class A.2 Shares are identical to those underlying the BIP Units; namely, the assets and operations held directly or indirectly by BIP.
87. Any costs related to a transaction entered into by New BIPC, BIPC or their subsidiary entities will be borne by BIP as the sole holder of the equity securities of New BIPC and BIPC. BIP consolidates New BIPC and BIPC and their businesses in its financial statements and the business of BIP (including New BIPC, BIPC and their subsidiary entities) is the same as it was before the creation of New BIPC and the transactions conducted in connection with, and to facilitate, the Reorganization.
88. If the New Exchangeable Shares and Class A.2 Shares are not included in the market capitalization of BIP, the equity value of BIP will be understated initially by the value of the New Exchangeable Shares and the Class A.2 Shares, being approximately 20% as of October 15, 2024. As a result, related party transactions of BIP that are entered into through Holding LP or any subsidiary entity of Holding LP may be subject to the Valuation and Minority Approval Requirements in circumstances where the fair market value of the transactions are effectively less than 25% of the fully diluted market capitalization of BIP.
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. in respect of the BIP Related Party Relief and New BIPC Related Party Relief:
(a) all of the equity securities of New BIPC are owned, directly or indirectly, by BIP;
(b) all of the voting securities of New BIPC, other than the New Exchangeable Shares, are owned, directly or indirectly, by BIP;
(c) BIP has voting control over New BIPC and controls the appointment and removal of directors of New BIPC;
(d) there are no material changes to the New Exchangeable Share Provisions, as described above; and
(e) BIP consolidates New BIPC and BIPC and their businesses in BIP's financial statements;
2. in respect of the Non-Group Related Party Relief:
(a) BIP will comply with the Related Party Transaction Requirements for each Other New BIPC Related Party Transaction as though BIP entered into the Other New BIPC Related Party Transaction directly;
(b) other than where a member of the BIP Group is also party to the Other New BIPC Related Party Transaction, in which case any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements (including for the Other New BIPC Related Party Transaction) will be in respect of the BIP Group (including New BIPC and New BIPC's subsidiary entities) on a consolidated basis:
(i) the subject matter of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other New BIPC Related Party Transaction and the value or range of values of such subject matter would be identical to any formal valuation obtained by New BIPC for the same Other New BIPC Related Party Transaction; and
(ii) the form and substance of any formal valuation required to be obtained by BIP under the Related Party Transaction Requirements for an Other New BIPC Related Party Transaction would be identical, in all material respects, to any formal valuation obtained by New BIPC for the same Other New BIPC Related Party Transaction; and
(c) any and all disclosure documents in connection with an Other New BIPC Related Party Transaction, including any formal valuations, information circulars or material change reports, are filed on the SEDAR+ profiles of both BIP and New BIPC;
3. in respect of the Transaction Size Relief:
(a) the transaction would qualify for the Market Cap Exemption if the New Exchangeable Shares and the Class A.2 Shares were considered an outstanding class of equity securities of BIP that were convertible into BIP Units;
(b) there are no material changes to the New Exchangeable Share Provisions or the A.2 Exchangeable Share Provisions, as described above;
(c) all of the equity securities of New BIPC and BIPC are held, directly or indirectly, by BIP; and
(d) any annual information form or equivalent of BIP that is required to be filed in accordance with applicable securities laws contain the following disclosure, with any immaterial modifications as the context may require:
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. Brookfield Infrastructure Partners L.P. ("BIP") has been granted exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, permits it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of BIP's market capitalization if the outstanding redeemable partnership units of Brookfield Infrastructure L.P., class A exchangeable subordinate voting shares of Brookfield Infrastructure Corporation ("BIPC") and class A.2 non-voting shares of Brookfield Infrastructure Holdings Corporation are included in the calculation of BIP's market capitalization. As a result, the 25% threshold above which the minority approval and valuation requirements would apply is increased to include the approximately [X]% indirect interest in BIP in the form of redeemable partnership units of Brookfield Infrastructure L.P. held by Brookfield Corporation or its subsidiaries, the approximately [X]% indirect interest in BIP in the form of class A exchangeable subordinate voting shares of BIPC held by the public, and approximately [X]% indirect interest in BIP in the form of class A.2 exchangeable non-voting shares of Brookfield Infrastructure Holdings Corporation held by Brookfield Corporation or its subsidiaries.
OSC File #: 2024/0518